IRS Guidance on 100% Deduction for Meal Portion of Per Diem Reimbursement

New guidance from the IRS makes clear that motor carriers with drivers subject to hours of service requirements can temporarily deduct the meal portion of per diem expense reimbursements at 100% instead of 80%. In order to provide relief for restaurants hard hit by the COVID-19 pandemic, the IRS issued guidance in April of 2021, temporarily raising the business expense deduction for restaurant meals for most employers from 50% to 100%. The question at that time was whether the 100% deduction would apply to the meal portion of meal and incidental expense (M&IE) per diem reimbursements provided by motor carriers to eligible drivers, raising the deduction to 100% from the 80% deduction motor carriers are typically allowed. Yesterday, the IRS answered that question in Notice 2021-63, “Temporary 100-Percent Deduction Applies to Meal Portion of 2021 and 2022 Per Diem Rate or Allowance.”

The temporary 100% deduction rule generally applies only to meals provided by restaurants. Notice 2021-63 clarifies that the meal portion of an M&IE per diem reimbursement will be deemed to be food or beverage provided by a restaurant and thus eligible for the 100% deduction in 2021 and 2022. The Notice also affirms that taxpayers must otherwise meet the special rules for substantiating business expenses in order for the deduction to apply. The 100% deduction applies only to meals - motor carriers providing an M&IE per diem expense reimbursement should thus account for the incidental expense portion of the M&IE. Under current guidance, an “incidental expense only” reimbursement plan is capped at $5.00 per day. While somewhat unclear, a motor carrier M&IE plan would seemingly need to continue to deduct $5.00 per day of the reimbursement at 80% and the remaining meal portion of the reimbursement at 100% through 2022.

Notice 2021-63 can be accessed here.

For more information, contact Scopelitis Partners Steve Pletcher and Kelli Block.