Who qualifies for per diem deduction under current IRS guidelines?

To qualify for a per diem deduction under current IRS guidelines, a taxpayer must meet several specific requirements. The rules differ for employees and self-employed individuals, but the core criteria are similar. Below is a comprehensive explanation of who qualifies, the conditions that must be met, and important nuances:

1. Who May Claim a Per Diem Deduction?

• Self-Employed Individuals: May claim per diem deductions for business travel expenses on their tax return (typically Schedule C for sole proprietors or Schedule F for farmers) if they meet the requirements described below.
• Employees: Generally, employees cannot deduct unreimbursed business expenses, including per diem, due to the suspension of miscellaneous itemized deductions subject to the 2% floor under IRC §67(a) for tax years 2018–2025. However, there are exceptions for certain categories of employees (e.g., qualified performing artists, Armed Forces reservists, fee-basis state or local government officials, and employees with impairment-related work expenses) who may use Form 2106 to claim such deductions.

2. General IRS Requirements for Per Diem Deduction

To qualify for a per diem deduction, the following conditions must be met:

a. Travel Must Be Away from Tax Home

• The taxpayer must be traveling away from their "tax home," which is generally the entire city or general area where their main place of business or work is located, regardless of where their family home is.
• Travel must require the taxpayer to be away from their tax home substantially longer than an ordinary workday and require sleep or rest to meet the demands of their work (i.e., an overnight stay is required).

b. Business Purpose

• The travel must be directly connected to the taxpayer’s trade or business. Personal travel, or the personal portion of a mixed-purpose trip, does not qualify.

c. Temporary Assignment

• The travel must be temporary, generally lasting less than one year. Assignments expected to last (or that do last) more than one year are considered indefinite, and related expenses are not deductible.

d. Eligible Expenses

• Per diem rates cover meals, lodging, and incidental expenses. The IRS publishes location-specific per diem rates annually (see GSA rates for CONUS travel).
• For self-employed individuals, the deduction for meals is limited to 50% of the per diem rate for meals and incidentals (M&IE), as required by IRC §274(n).

e. Substantiation and Recordkeeping

• Even when using per diem rates, taxpayers must substantiate the time, place, and business purpose of the travel. While receipts are not required for per diem, a log or travel diary showing dates, locations, and business purposes is necessary.
• For actual expenses (if not using per diem), detailed receipts and records are required.

3. Special Rules for Employees

• If an employee receives a per diem allowance from their employer under an accountable plan (i.e., the employee substantiates expenses and returns any excess reimbursement), the allowance up to the federal per diem rate is not taxable and not reported as income. Any excess is taxable and reported on Form W-2.
• Employees generally cannot claim a deduction for unreimbursed per diem expenses unless they fall into one of the special categories mentioned above.

4. Common Disqualifications

• Assignments or travel that are indefinite (expected to last more than one year).
• Travel that does not require an overnight stay.
• Travel that is not directly related to the taxpayer’s trade or business.
• Failure to maintain adequate records of the business purpose, time, and place of travel.
• Claiming per diem for travel within the vicinity of the tax home.

5. Summary Table of Key Requirements

7. Practical Examples

• Self-Employed Consultant: Travels from their tax home in Chicago to New York for a 3-day client meeting, stays overnight, and documents the business purpose. May claim per diem for meals and incidentals (subject to 50% limitation) and lodging (if using per diem rates), provided all requirements are met.
• Employee (not in a special category): Receives a per diem allowance from employer under an accountable plan. The allowance up to the federal rate is not taxable; no deduction is allowed for unreimbursed expenses unless the employee is a reservist, performing artist, etc.

In summary: A taxpayer qualifies for a per diem deduction if they are traveling away from their tax home on temporary business, the travel requires an overnight stay, the expenses are ordinary and necessary for their trade or business, and they maintain adequate records. Employees generally cannot deduct unreimbursed per diem expenses unless they are in a special category. Self-employed individuals may claim per diem deductions for qualifying business travel, subject to the 50% meals limitation and substantiation requirements.