Internal Revenue Service (IRS) Notice 2021-63 recently provided guidance that could provide a significant tax benefit for the construction industry (and other industries that pay their employees a per diem rate or allowance) for 2021 and 2022.
Internal Revenue Code (IRC) Section 274 generally limited the deduction for certain meals and entertainment expenses to 50% of the amount otherwise deductible. However, IRC 274(n)(2)(D) provides a temporary exception to the 50% limitation for expenses that are paid or incurred after December 31, 2020, and before January 1, 2023, for food or beverages provided by a restaurant. As a result, in general, expenses paid for eligible meal expenses are 100% deductible for the 2021 and 2022 calendar years.
When IRC Section 274(n)(2)(D) was issued, tax professionals generally assumed that per diem amounts paid to employee would not be eligible for the 100% deduction allowance because the amounts were not paid to (provided by) a restaurant.
IRS Notice 2021-63 provides taxpayers with good news by indicating that a taxpayer may treat the meal portion of a per diem rate or allowance paid of incurred after December 31, 2020 and before January 1, 2023, as being attributable to food or beverage provided by a restaurant.
It should be noted that the details of “accountable plans” and the rules related to per diems are beyond the scope of this article, and taxpayers should ensure that they are in compliance with the IRS substantiation rules provided by Revenue Procedure 2019-48.
In general, Revenue Procedure 2019-48 provides rules for taxpayers that choose to use a per diem rate in lieu of reimbursing actual lodging, meal and incidental expenses incurred by an employee for travel away from home.
If you would like to discuss the tax implications of per diems paid by your business, do not hesitate to contact Mark DiPietrantonio or a member of the Schneider Downs tax department.
