What is the difference between GSA and IRS per diem rates?

Question:

Why would the GSA and IRS have two different rates for per diem? We follow the IRS, but an employee is requesting pay based off of the GSA (https://www.federalpay.org/perdiem/2023). Why would they be different?

 

Answer:

The GSA (General Services Administration) and the IRS (Internal Revenue Service) are two distinct agencies with different responsibilities, which could potentially explain differences in per diem rates.

GSA:

The GSA per diem rates are designed to provide for the reimbursement of federal employees traveling on official government business. The GSA’s per diem rates are generally aimed to cover lodging, meals, and incidental expenses, and these rates are adjusted yearly and can vary significantly based on the geographic location within the United States. For instance, traveling to a high-cost city will typically yield a higher per diem rate than traveling to a lower-cost city.

IRS:

The IRS, on the other hand, is primarily concerned with taxation and tax regulation. When they issue per diem rates, it is usually related to what is allowable as a deduction for business travel expenses. IRS per diem rates are meant to provide a measure for businesses and self-employed individuals to calculate deductions related to travel expenses on their income tax returns. The IRS per diem rate may not necessarily cover the full cost of lodging, meals, and incidental expenses that a traveler might incur, but it provides a standard rate for tax deductions.

Why the Difference:

The differences in per diem rates between the GSA and the IRS reflect the distinct purposes and focuses of each agency. The GSA is focused on fair compensation for actual expenses incurred by federal employees during official travel, while the IRS is focused on establishing standardized rates for tax deduction purposes.

Decision-Making for Businesses:

Companies may choose to follow IRS per diem rates for simplicity and to ensure compliance with tax laws when providing travel allowances to their employees. However, some companies might choose to adhere to GSA rates or establish their own per diem rates based on internal policies and considerations such as the actual cost of travel, competitive practices in their industry, or employee contract terms.

 

It is crucial for the organization to clearly communicate to employees which rates are followed and how per diem amounts are determined. If an employee is requesting pay based on the GSA per diem rates, it would be beneficial to explain the company’s policy regarding per diems and the reason for adhering to IRS rates or any other determined rates.