Business travel expenses are one of the most controllable costs in an organization, and establishing per diem rates is one way to keep those expenses at a reasonable level. Companies can use U.S. government data and other industry research to determine appropriate average daily costs for travelers' meals. Individual business travelers should always be mindful of their companies' internal policies when dining during travel.
What are Per Diem Rates?
The U.S. General Services Administration annually sets per diem rates that include food and lodging costs for travelers on federal government business. Many businesses use this as guidance when setting their own per diem or acceptable reimbursement rates for corporate travelers. For meal costs, the General Services Administration studies several thousand restaurants every three to five years to inform its rates and regularly reviews requests from travelers to examine whether specific areas need updating in the interim.
As of this article's publication, the per diem rates in 2018/2019 averaged around $55 per day for breakfast, lunch and dinner.
Food Allowance Per Day By Geography
Regardless of the source, food per diem rates tend to fluctuate by geography. The General Services Administration, for example, sets a standard rate for the continental United States but also sets separate rates in cities that have higher meal costs. Major cities such as New York, Chicago, Los Angeles and San Francisco stay on the higher end of meal per diem rates. In 2019, for example, the group allots $76 for daily meal and incidental costs in these cities, compared with the $55 standard rates. Second-tier cities generally carry meal per diem rates in the middle of those two extremes.
Things to Consider
Businesses have two general routes when covering employee food expenses during travel: They can either set and issue a per diem directly, or they can reimburse employees directly for expenses incurred during a trip. If they choose to issue per diems based on General Services Administration standards, they can opt for a simplified "high-low" method rather than issuing per diems for each individual geography.
In this method, high-cost areas – major and some secondary cities – receive one per diem rate, and all other areas receive a lower rate. Because government per diem levels in most cases are not adequate to cover more expensive meals for executive travelers, many corporations opt simply to reimburse for meal costs, though they often also issue caps informed by per diem rates to keep costs under control.
Tax for Per Diems
Businesses that use General Services Administration average per diems for food and other travel costs gain one advantage in simplified reporting in accordance to Internal Revenue Service tax laws. While companies that reimburse need to keep detailed receipt and other data for these trips, those that use approved per diem rates need only to keep records of the trip itself, not individual expense receipts from the trip.
If you are self-employed, you also can use the per diem rates for guidance when deducting business expenses from your taxes. You can deduct a portion of the standard meal allowance, generally about 50 percent, as an expense in lieu of keeping tabs of every single meal receipt.