Per diem rates are a convenient way to manage business travel expenses, covering lodging, meals, and incidental costs without the need for detailed receipts. These rates are set by agencies like the GSA and IRS and help simplify expense reporting for both employers and employees. In this article, we’ll explain what per diem is, break down what it covers, and outline the key tax implications for 2026 compared to 2025 per diem rates. Here’s what you should know if your clients paid per diems to their employees or used them for their own
What is per diem?
Per Diems is a fixed daily allowance provided to employees to cover business-related travel expenses. It is designed to simplify expense management by reducing the need for detailed receipts and expense reports for every transaction. These rates may cover meals and incidentals, lodging, or both.
Agencies or companies typically set per diem rates, which can vary depending on the travel location’s cost of living and the nature of the trip. Per diem does not apply to local travel within your primary work location, trips where meals or lodging are fully provided (such as conferences or client-hosted events), or any non-business-related travel or personal extensions of a business trip.
Is per diem taxable?
For employees, per diems are not considered wages and, therefore, are not taxable. There are a few caveats to this. First, employees must submit an expense report that includes dates and location of the trip and the business purpose of the trip. Second, per diems must be within the allowable federal per diem rate set by the GSA; anything more than this amount is considered wages and is subject to taxes.
If employees are not reimbursed for their business travel expenses, they can claim them as a deduction on Form 2106 but only if they are itemizing deductions and if their expenses exceed 2% of their Adjusted Gross Income.
What is the per diem coverage breakdown?
Per diem covers a range of expenses. Generally, per diem rates are divided into two main categories: meals and incidentals (M&IE) and lodging. The rates are determined based on the geographical location and cost of living.
Meals and incidentals
Meals and incidentals include all daily meals (breakfast, lunch, and dinner), room service, laundry, dry cleaning, and tips given to service providers who provide those related services. For W2 employees, the reimbursement for the first and last day of travel is 75% of the total M&IE rate. This reduced rate accounts for partial travel days, here employees typically do not incur the full cost of three meals. See the chart below for an M&IE budget breakdown.
| M&IE breakdowns for the continental U.S. | |||||
| M&IE Total | Breakfast | Lunch | Dinner | Incidental Expenses | First & Last Day of Travel |
| $68 | $16 | $19 | $28 | $5 | $51.00 |
| $74 | $18 | $20 | $31 | $5 | $55.50 |
| $80 | $20 | $22 | $33 | $5 | $60.00 |
| $86 | $22 | $23 | $36 | $5 | $64.50 |
| $92 | $23 | $26 | $38 | $5 | $69.00 |
Lodging
The lodging category includes accommodations such as hotels, resorts, Airbnb, and apartments. Lodging per diem is a budgeted amount determined by season and location, reflecting typical costs in the area. Rates can vary based on several factors
including:
- Property selection criteria – type and quality of accommodation considered in the rate calculation
- Time frame of data – historical pricing data used to set rates
- Seasonality – higher costs during peak travel seasons or special events
Advise clients to ask their employer’s human resources or accounting department for specific rates.
Is per diem based on location?
Yes, per diem is heavily determined by location. Per diem rates for the continental U.S. are set each year by the General Services Administration (GSA). For fiscal year 2024 (which began October 1, 2023), the standard rate is $166. Of that amount, $107 is for lodging, and the remaining $59 is for meals and incidental expenses (M&IE). The GSA also sets rates for over 302 specific destinations where the cost of living tends to be higher than average.
Foreign per diem rates are established by the Department of State and are updated monthly. Per diem rates for travel in Hawaii, Alaska, and U.S. territories are set by the Department of Defense.
What is the IRS high-low per diem rates?
The IRS provides optional high-low per diem rates, which employers can use instead of GSA rates to simplify expense reporting. These rates set a single standard for areas with a higher cost of living (usually urban areas) and another lower rate for lower-cost areas.
The IRS per diem high-low rates for the period October 1, 2025, through September 30, 2026 are:
- High-cost localities: $319 per day ($233 lodging and $86 M&IE)
- Low-cost localities: $225 per day ($151 lodging and $74 M&IE)
These rates are published in IRS Notice 2025-54 Most employers, however, choose to use the GSA rates.
Can employers deduct per diem?
Employers can deduct up to 50% of per diem spending for meals and incidentals. Lodging expenses are usually completely deductible as long as they are within per diem limits. Employers must retain records of the expense reports, but the per diem method usually simplifies their bookkeeping and deductions since they do not need to track every single expense of the trip.
For individuals that are self-employed, utilizing per diem for themselves is a bit trickier. They can’t use per diem lodging rates at all and must keep track of exact expenses instead. They can utilize the meal and incidental rates but, again, can only deduct 50% of the costs. ln most cases, using the actual expense method (i.e. keeping track of every receipt for the trip instead of utilizing per diem rates) involves the same amount of paperwork for business owners as they don’t have to provide receipts for meals that are less than $75 anyway.
In short, per diems are a great way to simplify travel expenses and bookkeeping for most businesses and employees. For business owners and sole proprietors, however, the actual expense method is usually just as simple as the per diem method – something you may consider for your own business-related travel!
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