IRS clarifies temporary deductibility of per diem meal expenses

Nov 18, 2021
Nov 18, 2021
0 min. read

An employee’s per diem may be 100% deductible for 2021 and 2022

The IRS has issued Notice 2021-63, clarifying previous guidance issued under Notice 2021-25 pertaining to the deductibility of food and beverages provided by a restaurant. As our previous alert discussed, Congress provided a temporary exception to the 50% business deduction for certain business meals under the Taxpayer Certainty and Disaster Relief Act of 2020 (the Act). The temporary exception under the Act allows a 100% deduction for business meals if the food or beverages are provided by restaurants after Dec. 31, 2020 and before Jan. 1, 2023. 

Notice 2021-25 was released following the introduction of this exception by the Act, providing guidance on which businesses do and do not qualify as ‘restaurants’ for this purpose and whether food or beverages are deductible if provided in conjunction with an entertainment event. However, one point Notice 2021-25 did not address was how the 100% exception applies to meals provided to employees through per diem or meal allowances. 

Under Internal Revenue Code section 274(d), meals provided to employees while traveling away from home are generally nondeductible unless the employee and employer can substantiate the expenses in a manner that satisfies requirements under the section 274 regulations. These regulations require receipts, paid bills or other similar evidence to substantiate the deductions. Per diem amounts (under the IRS per diem guidance) generally do not require as much substantiation. Per diems can only be provided while an employee travels away from home overnight for business. Thus, it was not clear whether meal expenses paid or incurred under the per diem guidance were business expenses that could be fully deductible under the temporary change to the business meals deduction rules.

Notice 2021-63 addresses this ambiguity and clarifies that the meal portion of an employee’s per diem is in fact includable in the 100% deduction exception for meals provided by a restaurant. It further provides that if taxpayers follow the general per diem rules outlined in Rev. Proc. 2019-48, the substantiation requirements of the section 274 regulations are automatically satisfied. Therefore, under these conditions, any portion of an employee’s per diem pertaining to food or beverages provided by a restaurant is 100% deductible for expenses paid or incurred from Jan. 1, 2021 through Dec. 31, 2022. For a company that does not pay a meals per diem based on the full federal per diem amount and is required to allocate 40% of the total per diem as a meals allowance, the 40% amount is treated as deductible as food or beverage expense.


This taxpayer-friendly deduction opportunity will affect upcoming tax filings beginning with the 2021 tax year. Taxpayers should review their per diem and meal allowance arrangements to determine whether they are following the rules outlined in Rev. Proc. 2019-48 and should have discussions with their tax advisors to determine whether the expenses under their arrangements qualify for the 100% deduction exception so that such deductions can be taken on their 2021 tax returns.

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