IRS publication 1542 is a document of the Internal Revenue Service (IRS) of the United States. This publication discusses per diem rates applicable to employees for business travel within the Continental United States, which includes the 48 contiguous states. This document provides information on the maximum per diem rate that an employee could use without any treatment of part of the per diem travel allowances as wages for IRS tax purposes. You should also refer to Chapter 11 of IRS publication 535, Business Expenses, or go through Revenue Procedure 2011-47, 2011-42 I.R.B. 520 for detailed discussion on the per diem allowance tax treatment.
How to Calculate Per Diem
The IRS 1542 offers two substantiation methods for calculation of per diem rates and the choices available to you for the last 3 months of the tax year. The first method is termed as high-low method. Table 1 of IRS publication 1542 lists the various localities considered as high cost localities for travel on or after October 1, 2010. You are eligible for $233 per diem, effective from October 1, 2010, including $65 for meals and incidental expenses (M&IE). The per diem rate applicable for other low cost localities is $160, with $52 for M&IE. Table 2 of the IRS 1542 is effective from October 1, 2011. If your travel away from your home on business is on or after October 1, 20111, the per diem rate for high cost localities is $242, with $65 for M&IE. For other low cost localities, the per diem rate is $163, with $52 for M&IE.
Another Way to Calculate Per Diem
The second method of substantiation of per diem rates is the regular federal method. Tables 3 and 4 of the IRS publication 1542 provide the federal per diem rates that have the approval of the General Services Administration (GSA). Table 3 is effective from October 1, 2010 and table 4 is effective from October 1, 2011. The per diem rates for maximum rate of lodging, rate of M&IE, and maximum per diem rate in table 3 varies widely according to different locations included in that table for the period between October 1, 2010 and September 30, 2011. For all other locations not included in table 3, the standard per diem rate is $123 with $77 for lodging and $46 for M&IE. The computation of maximum per diem rate according to table 4 of IRS 1542 is effective between October 1, 2011 and September 30, 2012 for various locations listed in this table and this varies widely. For locations not included in table 4, the standard federal per diem rate is $123, with $77 for lodging and $46 for M&IE.
Using New Per Diem Rates
According to IRS 1542, the transition period is the 3 month period from October 1 to December 31. The document allows the taxpayer to change to the new rates within this period or continue the old rates. However, the document makes certain stipulations for the employer if the per diem rate is through high-low substantiation method and other restrictions for employers who use federal per diem rate substantial method. Hence, it is necessary that employers and other taxpayers study IRS 1542 carefully or consult an experienced tax professional before computing per diem rates.