Notice 2018-77

This annual notice provides the 2018–2019 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, specifically (1) the special transportation industry meal and incidental expenses (M&IE) rates, (2) the rate for the incidental expenses only deduction, and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method.

Rev. Proc. 2011–47, 2011–42 I.R.B. 520 (or successor), provides rules for using a per diem rate to substantiate, under § 274(d) of the Internal Revenue Code and § 1.274–5 of the Income Tax Regulations, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Taxpayers using the rates and list of high-cost localities provided in this notice must comply with Rev. Proc. 2011–47 (or successor). Notice 2017–54, 2017–42 I.R.B. 321, provides the rates and list of high-cost localities for the period October 1, 2017, to September 30, 2018.

Section 3.02(3) of Rev. Proc. 2011–47 (or successor) provides that the term “incidental expenses” has the same meaning as in the Federal Travel Regulations, 41 C.F.R. 300–3.1, and that future changes to the definition of incidental expenses in the Federal Travel Regulations would be announced in the annual per diem notice. Subsequent to the publication of Rev. Proc. 2011–47, the General Services Administration published final regulations revising the definition of incidental expenses under the Federal Travel Regulations to include only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships. Transportation between places of lodging or business and places where meals are taken, and the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings, are no longer included in incidental expenses. Accordingly, taxpayers using the per diem rates may separately deduct, if permitted, or be reimbursed for transportation and mailing expenses.

The special M&IE rates for taxpayers in the transportation industry are $66 for any locality of travel in the continental United States (CONUS) and $71 for any locality of travel outside the continental United States (OCONUS). See section 4.04 of Rev. Proc. 2011–47 (or successor).

The rate for any CONUS or OCONUS locality of travel for the incidental expenses only deduction is $5 per day. See section 4.05 of Rev. Proc. 2011–47 (or successor).

1. Annual high-low rates. For purposes of the high-low substantiation method, the per diem rates in lieu of the rates described in Notice 2017–54 (the per diem substantiation method) are $287 for travel to any high-cost locality and $195 for travel to any other locality within CONUS. The amount of the $287 high rate and $195 low rate that is treated as paid for meals for purposes of § 274(n) is $71 for travel to any high-cost locality and $60 for travel to any other locality within CONUS. See section 5.02 of Rev. Proc. 2011–47 (or successor). The per diem rates in lieu of the rates described in Notice 2017–54 (the meal and incidental expenses only substantiation method) are $71 for travel to any high-cost locality and $60 for travel to any other locality within CONUS.

2. High-cost localities. The following localities have a federal per diem rate of $241 or more, and are high-cost localities for all of the calendar year or the portion of the calendar year specified in parentheses under the key city name.

3. Changes in high-cost localities. The list of high-cost localities in this notice differs from the list of high-cost localities in section 5 of Notice 2017–54.

This notice is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only, that are paid to any employee on or after October 1, 2018, for travel away from home on or after October 1, 2018. For purposes of computing the amount allowable as a deduction for travel away from home, this notice is effective for meal and incidental expenses or for incidental expenses only paid or incurred on or after October 1, 2018. See sections 4.06 and 5.04 of Rev. Proc. 2011–47 (or successor) for transition rules for the last 3 months of calendar year 2018.

Notice 2017–54 is superseded.

The principal author of this notice is Maxine Woo-Garcia of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice contact Maxine Woo-Garcia at (202) 317-7005 (not a toll-free number).