Employers may pay a per-diem amount to an employee on business-travel status instead of reimbursing actual substantiated expenses for away-from-home lodging, meal and incidental expenses. If the rate paid doesn't exceed IRS-approved maximums, and the employee provides simplified substantiation (time, place, and business purpose), the reimbursement is treated as made under an accountable plan (it isn't subject to income or payroll-tax withholding) and isn't reported on the employee's Form W-2. Receipts for expenses aren't required.

The IRS has issued new simplified per diem rates for lodging, meals and incidentals for 2021.

For high-cost locales, employees can get up to $292 (down from $297) tax-free each day. For other areas, the daily stipend is capped at $198 (down from $200), consisting of $138 for lodging and $60 for meal and incidental expenses. Organizations can begin using the new rates on October 1 or wait until January 1, 2021.

For meals and incidentals only, the rates are $71 a day in high-cost areas and $60 elsewhere. For more information see IRS Notice 2020-71.