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New IRS Per Diem Rates for 2017

The IRS is giving a boost to business travelers. In new Notice 2016-58, issued September 27, 2016, it has updated the “per diem” rates for Fiscal Year 2017 (FY2017), officially beginning on October 1, 2016. The rate for “high-cost areas” is up $7, a ...

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The IRS is giving a boost to business travelers. In new Notice 2016-58, issued September 27, 2016, it has updated the “per diem” rates for Fiscal Year 2017 (FY2017), officially beginning on October 1, 2016. The rate for “high-cost areas” is up $7, a relatively modest increase, while the rate for the other “low-cost areas” has been bumped up by $4.

Technically, the per diem rates are set by the Government Services Administration (GSA), covering employees traveling to destinations both within the continental U.S. and outside. These rates may be relied upon by private employers, as well as the federal government, and many do. Using the rates spares employers from many of the recordkeeping hassles associated with tracking business travel of employees.

Besides the standard rates listed for specific destinations, certain high-cost areas are specified in the Notice. All other destinations are treated as low-cost areas if the high-low alternative is used.

Your business clients can start using the updated rates right away or wait until next year. For FY2017, the new per diem rate for high-cost areas is $282 (up from $275 in FY2016, consisting of $214 for lodging and $68 for meals and incidental expenses (M&IE). The per diem for all other localities is $189 (up from $185 in FY 2016), consisting of $132 for lodging and $57 for M&IE.

As you might expect, most major metropolitan centers like New York, Chicago and Los Angeles are included in the list of high-cost areas, but smaller places like Hershey, Pennsylvania might take your by surprise. The list of cities is tweaked every year while the times for some seasonal resort areas are lengthened or shortened. The following changes apply for FY2017.

  • Locations added to the list of high-cost areas are Sedona, Arizona; Los Angeles, California; Mill Valley/San Rafael/Novato, California; Vero Beach, Florida; Kill Devil, North Carolina; and Seaside, Oregon.
  • Locations of high-cost areas where the portion of the year is modified are Denver/Aurora, Colorado; Vail, Colorado; Fort Lauderdale, Florida; Naples, Florida; Chicago, Illinois; Philadelphia, Pennsylvania; Jamestown/Middletown/Newport, Rhode Island; and Jackson/Pinedale, Wyoming.
  • Finally, locations removed from the list of high-cost areas are Mammoth Lakes, California; and Midland, Texas.

Note that other special rules may apply. For example, instead of using actual expenses to deduct incidental expenses when traveling on business, employees and self-employed individuals who don’t have meal expenses during a calendar day, or part of a day, may deduct $5 for each day, or part of a day, away from home during FY2017 (the same as in FY2016). Also, the M&IE rates for taxpayers in the transportation industry are $63 within the continental U.S. and $68 outside it (the same as in FY2016.

Notice 2016, featuring the entire list of high-costs areas for FY 017, can be found at https://www.irs.gov/pub/irs-drop/n-16-58.pdf.