Per diem: definition
Originally derived from Latin, per diem means “per day”. But in a professional context, a per diem is a specific sum of money paid to a person as a daily allowance in addition to their regular wage.
Different types of per diem
The most common type of per diem is that provided to an employee to cover the cost of a business trip. Typically, an employer will offer a per diem to cover the cost of accommodation, meals and incidental expenses (also known as M&IE). If the employee does not require accommodation—for example, because they are staying with family—the per diem amount can be adjusted to cover meals and incidentals only. Note that per diems cannot be used for expenses related to travel or transportation.
Per diem travel rates
Per diem rates are set depending on where in the Continental United States (CONUS) the business trip is taking place. Because the cost of accommodation and meals is different depending on where you are, the U.S. General Services Administration website has calculated specific per diem rates for each city.
While most employers stick to the per diem rates set by the GSA, they can also choose to use the IRS’s simplified reimbursement system, called the high-low method, which establishes a flat-rate per diem for high-cost cities, and another one for non high-cost cities.
In 2022, the flat rate for high-cost cities is $296 (of which $74 can be spent on meals), while the flat rate for non high-cost cities is $202 (of which $64 can be spent on meals). High-low rates are adjusted on an annual basis. For a useful overview of high-low rates in 2022, consult the IRS’ Notice-2021-52.
For locations that do not have specified rates in the GSA tables, employers can use a standard per diem rate. The 2022 standard per diem rate in the U.S. is $155 — $96 for accomodation and $59 for meals and incidental expenses. The majority of localities in the U.S. are covered by the standard per diem rate. However, there are 319 non-standard areas (NSAs) that have per diem rates higher than the standard rate.
Note that on the first and final day of the business trip, employers are only obligated to pay 75% of the standard per diem rate.
Per diem employee reimbursements
Per diems have the advantage of simplifying bookkeeping. Instead of keeping receipts of every expense incurred during the business trip, the employer and employee agree on a fixed allowance for each day. For example, if a business trip requires the employee to stay at a hotel for three nights, they are entitled to an allowance for each day.
Since per diem rates are estimates, the actual costs incurred during a business trip may turn out to be higher or lower than the per diem amount. If they are lower, the employee can keep the difference. If they are higher, the employee has to pay the difference out of their own pocket.
What are the federal per diem rates in 2022?
The 2022 federal per diem rate in the U.S. is $155 — $96 for accomodation and $59 for meals and incidental expenses. However, there are 319 non-standard areas (NSA) that have per diem rates that are higher than the federal per diem rate.
What does per diem reimbursement mean for taxes?
For employees, per diems are not taxable as they are not considered wages. However, two conditions must be met. First, employees must submit an expense report containing the exact date, location and business purpose of the trip. Second, the per diem amount they receive cannot exceed the federal per diem rate set by the GSA. Every dollar above the $155 threshold is considered wages and therefore taxable.
Employers can deduct up to 50% of their per diem spending for meals and incidentals, and up to 100% of accommodation expenses (if they are within per diem limits). Employers must also retain records of the expense reports, but since they do not need to track every expense this bookkeeping is fairly simple.
How your businesses can pay per diem rates with Jenji
Jenji’s automated expense management solution is perfectly tailored to your needs while respecting your financial and auditing constraints. Whether you’re an SME or a large corporate, our solution can be seamlessly integrated with your current digital environment.
With Jenji, taking care of per diem reimbursements has never been easier. You can upload digital receipts based on a simple photo taken by your employee. Per diem payment processing can be done in real time, with anomaly and fraud detection for a more dynamic reimbursement process.
To find out how Jenji can help your company manage per diem reimbursements, as well as a wide range of other bookkeeping and payment solutions, get in touch with us at email@example.com