Per diem is a flat daily allowance your employer pays to cover lodging, meals, and incidental costs while you travel for work. For fiscal year 2026, the standard federal rate for most locations in the continental United States is $178 per day: $110 for lodging and $68 for meals and incidentals.1Federal Register. Maximum Per Diem Reimbursement Rates for the Continental United States CONUS So how does per diem work in practice? Private employers can set any amount they want, but the federal rate marks the ceiling for tax-free treatment. Stay at or below that rate, submit a proper expense report, and the money never shows up as taxable wages. Go over, or skip the paperwork, and the IRS treats it as income.2Internal Revenue Service. Per Diem Payments Frequently Asked Questions
The Two Parts of a Per Diem Payment
Every per diem breaks into a lodging portion and a meals-and-incidental-expenses portion, usually called M&IE. Lodging covers your hotel room. M&IE covers breakfast, lunch, dinner, and small extras like tips to baggage handlers or housekeeping. Taxes and tips on meals are already built into the M&IE figure, so you can’t claim them separately.3U.S. General Services Administration. M&IE Breakdowns
Here’s the part travelers care about most: if you don’t spend the full M&IE allowance, you keep the difference. Eat cheaply on a day with a $68 M&IE rate and spend only $40, and the remaining $28 is yours. That’s the trade-off with per diem. You give up the ability to be reimbursed for the fancier dinner, and in exchange you skip saving every receipt and pocket whatever you don’t use.
Where Your Rate Comes From
The daily number you’re entitled to depends on where you’re going, and three different systems set the rates.
For destinations in the lower 48, the General Services Administration publishes per diem rates for hundreds of specific cities and counties. Any location not on the list falls under the standard CONUS rate: $110 for lodging and $68 for M&IE in FY2026. High-cost cities like New York, San Francisco, and Washington, D.C. carry substantially higher figures. Rates reset every federal fiscal year on October 1, and some tourist destinations have different peak and off-peak rates.4U.S. General Services Administration. Per Diem Rates
For international travel, the State Department’s Office of Allowances sets the rate for every foreign location.5U.S. Department of State. Office of Allowances Hawaii, Alaska, and U.S. territories run on separate schedules managed by the Department of Defense.
The IRS High-Low Shortcut
Rather than track hundreds of city-specific figures, some employers use the IRS high-low method, which splits the country into just two tiers. For travel from October 1, 2025 through September 30, 2026, the high-cost rate is $319 per day (with $86 for M&IE) and the rate for everywhere else is $225 per day (with $74 for M&IE). The IRS publishes a list each year of which cities qualify as high-cost.6Internal Revenue Service. Notice 2025-54
What Your Employer Can Actually Pay
Private employers aren’t required to match the federal rate. They can pay more, they can pay less. The federal rate simply draws the line between tax-free and taxable. An amount at or below the federal rate that you properly substantiate stays off your W-2. Anything above the federal rate is treated as wages, subject to income tax and payroll taxes.2Internal Revenue Service. Per Diem Payments Frequently Asked Questions Some companies deliberately set per diem below the GSA rate to control costs; that’s legal, if not popular with travelers.
Travel Days Get 75 Percent
You don’t get the full M&IE rate on every calendar day of the trip. On the day you leave and the day you return, the federal standard is 75 percent of the M&IE rate for the destination.7eCFR. 41 CFR Part 301-11 Subpart A – General Rules With a $68 M&IE rate, that works out to $51 on each of those days and $68 for every full day in between. Many private employers follow the same rule, though some simplify by paying the full rate for every travel day.8U.S. General Services Administration. Frequently Asked Questions, Per Diem
When Per Diem Stays Tax-Free
Whether per diem lands in Box 1 of your W-2 depends almost entirely on whether your employer runs what the IRS calls an accountable plan. An accountable plan has three conditions:
- The travel serves a legitimate business purpose.
- You provide an expense report with dates, destination, and business reason within a reasonable time.
- If you received an advance larger than your substantiated expenses, you return the excess within a reasonable period.
When all three are met and the payment sits at or below the federal rate, the per diem is not taxable. No income tax, no Social Security tax, no Medicare tax on either side.2Internal Revenue Service. Per Diem Payments Frequently Asked Questions
The picture flips fast when something breaks. Pay above the federal rate, and the excess becomes taxable wages with the usual withholding. Skip the expense report entirely, and the whole payment becomes taxable, because the arrangement no longer qualifies as an accountable plan.9Internal Revenue Service. Publication 5137, Fringe Benefits Guide Most compliance problems trace back to that second failure: a flat stipend goes out, nobody files paperwork, and every dollar gets reclassified as wages.
Tax Home and the Overnight Rule
Per diem only enters the picture when you’re traveling away from your tax home. The IRS defines your tax home as your regular place of business or the general area where your work is located, regardless of where your family lives. You’re considered “away from home” only when your work takes you far enough from that area that you need to stop and sleep before returning.10Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses A same-day trip across the state doesn’t qualify for tax-free per diem, no matter how long the drive.
If you have no regular place of business and no fixed home, the IRS treats you as an itinerant. Your tax home moves with you, which means you’re never away from it, and you can never receive tax-free travel reimbursement. Some long-term travelers learn this the hard way.
The One-Year Rule
A temporary work assignment away from your tax home qualifies for tax-free per diem, but only if it’s realistically expected to last one year or less. An assignment expected to last more than a year is considered indefinite, the work location becomes your new tax home, and any per diem your employer pays becomes taxable wages.10Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
What matters is your expectation at the start. If you take a six-month project that later gets extended to 18 months, the assignment flips from temporary to indefinite at the point when the expected duration crosses the one-year mark, and per diem becomes taxable from that date forward. A series of shorter assignments to the same location can also be treated as indefinite if they add up to more than a year.
What You Have to Document
Per diem cuts down on paperwork, but it doesn’t eliminate it. You don’t need to save meal receipts, but your expense report still needs the basics:
- The business purpose of the trip.
- The dates you traveled.
- The destination.
- A lodging receipt showing the property, dates of stay, and nightly rate.
Lodging is the one area where receipts remain mandatory. Federal travelers must provide one regardless of cost, and most private employers do the same.8U.S. General Services Administration. Frequently Asked Questions, Per Diem
Timing matters. The IRS considers 60 days after the trip ends to be the outer edge of “reasonable” for filing your expense report. If you received an advance, any excess you didn’t spend must be returned within 120 days.2Internal Revenue Service. Per Diem Payments Frequently Asked Questions Miss either window and a clean, tax-free reimbursement can get reclassified as taxable income.
Per Diem If You’re Self-Employed
Self-employed workers can use the federal M&IE rate as a standard meal allowance when deducting business travel meals. For most locations in 2026, that’s $68 a day with no need to track individual meals. Travel to a city with a higher M&IE rate, and you can use that higher figure.10Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
Lodging works differently. There is no standard lodging allowance for the self-employed. You deduct actual lodging costs and keep receipts.
One more limit: the deduction for business meals is generally capped at 50 percent of the allowable amount.11Internal Revenue Service. Income and Expenses 2 Claim the $68 standard meal allowance and you deduct $34. The temporary 100 percent deduction for restaurant meals expired after 2022.
A Higher Rate for Transportation Workers
Truckers, pilots, flight attendants, railroad crew, and other workers subject to Department of Transportation hours-of-service limits use a separate M&IE figure. From October 1, 2025 through September 30, 2026, that special rate is $80 per day for domestic travel and $86 per day outside the continental United States.6Internal Revenue Service. Notice 2025-54 These workers also get an 80 percent meal deduction rather than the standard 50 percent, which adds up quickly over a year mostly spent on the road.