Are Per Diem Meals 100% Deductible?

Using per diem rates simplifies how businesses and self-employed individuals account for travel meal expenses. However, the rules governing the tax deductibility of these costs can be confusing. Understanding the current tax treatment is important for accurate financial reporting and tax filing, especially following recent legislative changes to deduction limits.

The Current Deductibility of Business Meals

For tax years 2023 and onward, business meals are 50% deductible. This long-standing rule limits the amount that a business or self-employed individual can claim as an expense. The 50% limitation applies to the cost of the meal, whether you use the actual cost or a per diem rate to determine that amount.

A temporary rule, enacted to support the restaurant industry, allowed a 100% deduction for food and beverages provided by a restaurant in 2021 and 2022. That temporary provision has expired. Beginning January 1, 2023, the deductibility of business meals reverted to the 50% limit for all taxpayers.

Using Per Diem Rates for Meal Costs

The per diem method is an alternative to tracking the actual cost of every meal while on business travel. The Internal Revenue Service (IRS) allows taxpayers to use a set daily rate for meals and incidental expenses (M&IE). These rates are established by the General Services Administration (GSA) and are updated annually for different locations.

You can find the applicable rates for travel destinations on the GSA’s website. As a simplified alternative, the IRS provides a “high-low substantiation method.” This method establishes one rate for designated high-cost localities and another for all other locations within the continental U.S., which simplifies calculations for frequent travelers.

Using these government-approved rates relieves the traveler from collecting a receipt for every meal. The taxpayer simply multiplies the number of travel days by the applicable M&IE rate to determine the total meal expense before applying the deduction limit.

Required Substantiation for Travel

Using the per diem method for meal costs does not eliminate all recordkeeping requirements. While you are relieved from substantiating the specific amount of each meal expense, you must still maintain records to prove the business nature of the travel itself. The IRS requires documentation that establishes the time, place, and business purpose of the trip.

Acceptable records include a detailed travel log, calendar entries, or trip reports. For each business trip, you should document the dates of departure and return, the name of the city or area of travel, and the specific business reason for the trip, such as notes on client meetings or conferences attended. Without this travel substantiation, the meal expense deduction could be disallowed by the IRS.

Application for Different Taxpayers

Self-Employed Individuals

Self-employed individuals, such as independent contractors and sole proprietors, can use the per diem method to calculate their meal expenses for business travel. The deductible amount is claimed as a business expense on Schedule C (Form 1040), which reduces their overall self-employment income. It is important to note that self-employed individuals cannot use per diem rates for lodging and must keep actual receipts for those costs.

Employers

Employers can use per diem rates to reimburse employees for lodging, meal, and incidental expenses incurred during business travel under an accountable plan. When an employer provides a per diem reimbursement at or below the federal rates, and the employee substantiates the travel, the reimbursement is not considered wages. The employer deducts the reimbursement, subject to the 50% limit on the meal portion, and the payment is excluded from the employee’s taxable income.

Employees

Following changes in tax law, employees can no longer deduct unreimbursed business expenses on their personal tax returns. This eliminated the miscellaneous itemized deduction for items like travel and meal costs that an employer did not pay for. The primary way for an employee to be compensated for business travel meal costs without tax consequences is to receive a reimbursement from their employer under an accountable plan.