How Per Diem Rates Work in Government Contracting

Per diem rates in government contracting are the daily ceilings the government will reimburse for lodging and for meals and incidental expenses when someone travels on official contract business. For fiscal year 2026, the standard rate across most of the continental United States is $110 per night for lodging and $68 per day for meals and incidentals, or $178 total.¹ Anything a contractor bills above those caps without proper authorization is unallowable under FAR 31.205-46, which means the contractor absorbs it.²

What the Caps Cover

Per diem has two separate caps, and they don’t cross-subsidize. Coming in under budget on your hotel doesn’t create headroom for a bigger dinner, and vice versa.¹

The lodging cap covers overnight accommodations, including in-room charges like telephone access fees and climate-control surcharges when the hotel bills those separately from the room rate. Sleeping accommodations on planes, trains, or buses do not count as lodging; those fall under transportation.³

The meals and incidental expenses allowance, or M&IE, is a flat daily amount. At the FY2026 standard $68, that breaks down as $16 breakfast, $19 lunch, $28 dinner, and $5 incidentals. The incidentals piece covers tips to porters, baggage carriers, bellhops, and hotel staff; local transportation between your hotel and a restaurant when meals aren’t available on-site; and the cost of mailing your travel voucher.³ Laundry and dry cleaning are commonly assumed to be incidentals. They aren’t. Those costs sit outside per diem entirely.

Lodging Taxes

For travel inside CONUS and non-foreign areas, lodging taxes are reimbursed separately as a miscellaneous expense and do not count against the lodging cap.⁴ For foreign travel, lodging taxes are already built into the Department of State’s per diem rate, so you can’t claim them on top.⁵

Costs That Are Never Allowable

Some expenses stay off-limits regardless of the cap. Alcohol is unallowable on any government contract.⁶ Entertainment and meals for people who aren’t traveling on the contract are excluded from M&IE.³ Airfare above the lowest available fare during normal business hours is unallowable unless the contractor documents a specific justification such as unreasonable routing, medical necessity, or a scheduling conflict that would raise total trip costs.² The personal-use portion of a company-furnished vehicle is unallowable too, including the commute to and from the traveler’s home.

How Rates Vary by Location

Three agencies publish per diem rates. GSA sets rates for CONUS.¹ The Department of Defense sets rates for non-foreign areas outside CONUS, including Alaska, Hawaii, and U.S. territories.⁷ The Department of State handles foreign countries.⁸ GSA reviews both standard and non-standard CONUS rates annually.⁵

Most CONUS locations use the standard $110 lodging and $68 M&IE rate. Roughly 300 non-standard areas carry higher caps that reflect local hotel and food markets. Major metros, resort towns, and consistently expensive destinations sit in these higher tiers. The gap can be substantial: FY2026 rates for Honolulu run $202 lodging and $130 M&IE, and Adak, Alaska hits $239 for lodging.⁷

Rates are defined by county, so verify the exact locality of your destination rather than assuming it matches the nearest big city. A hotel one county over from a non-standard area may only qualify for the standard rate. The GSA site lets you search by city, state, or ZIP code for the rate that applies on your travel dates.¹

FAR 31.205-46 and Going Above the Cap

FAR 31.205-46 is the controlling rule for contractor travel. It provides that lodging, meals, and incidental expenses are reasonable and allowable only to the extent they don’t exceed the applicable per diem maximum in effect on the dates of travel.² The regulation directs contractors to the Federal Travel Regulation for CONUS, the Joint Travel Regulations for Alaska, Hawaii, and U.S. territories, and Department of State rates for foreign travel.

Contractors have some flexibility in structuring reimbursement. Lodging and meals can be paid on a per diem basis, on actual expenses, or on some combination, so long as the result is a reasonable charge.² Most contracts specify the approach and often incorporate the FTR or JTR by reference. Confirm which set of regulations governs your contract; the rules differ in small but financially significant ways.

The Actual Expense Method

When a traveler is in an area where no reasonable lodging is available at the per diem rate, FAR 31.205-46 allows reimbursement above the cap under the actual expense method. The ceiling is 300 percent of the applicable per diem rate, rounded up to the next dollar.⁹ At a $110 standard lodging rate, that puts the absolute maximum at $330 per night.

Reaching that ceiling isn’t automatic. One of the conditions in the FTR that warrant actual expense must apply, and a contracting officer must provide written justification. If the contractor needs this authority repeatedly in the same area, advance approval from the contracting officer is required.² Agencies can also set a lower ceiling than 300 percent by internal policy. This exception is for constrained situations, not a route around the standard cap for travelers who want nicer hotels.

Deductions That Change the Number

Government-Furnished Meals

When the government provides a meal directly, whether through a conference registration fee or at a government facility, the traveler reduces the M&IE claim by the value of that meal.¹⁰ A government-provided lunch at the standard $68 rate means deducting the $19 lunch allocation. On partial travel days, the deduction comes out of the reduced 75-percent rate instead.

Two exceptions matter. Complimentary hotel meals and meals provided by a common carrier such as an airline don’t require a deduction. And if a medical dietary restriction or religious observance prevented you from eating a furnished meal and you bought a substitute, your agency can authorize claiming the full M&IE amount if you requested that approval before traveling.¹⁰ However many meals are deducted, you always keep at least the $5 incidental portion.

Partial Travel Days

The first and last days of a trip pay 75 percent of the applicable M&IE rate rather than the full amount.⁵ At the $68 standard rate, that’s $51. The prorated amount uses the M&IE rate at the temporary duty location, not your home base. Record departure and return times so the calculation holds up.

Extended Assignments

For temporary duty travel lasting 30 or more continuous days, agencies may reduce per diem below the published maximum when they determine lodging and meal costs in the area will run lower than the full rate. The FTR permits this but doesn’t require it or fix a percentage, so the practice varies. Some agencies trim the M&IE portion when a traveler has kitchenette access, reasoning that cooking lowers food costs. Others price the assignment case by case.

Because any reduction is discretionary and agency-specific, confirm the applicable rate in writing before the assignment begins. Where a reduced rate applies, it typically covers the first day at the assignment location through the last. Travel days themselves are still reimbursed at 75 percent of the full M&IE rate.⁵

Documentation That Keeps Costs Allowable

FAR 31.205-46 requires three pieces of information for any travel expense to be allowable: the date and place of the expense, the purpose of the trip, and the name and title of the traveler.² Miss one, and an otherwise reasonable cost becomes unallowable. This is where most contractors get burned in audits.

For actual costs that exceed the standard per diem, a receipt is required for every expenditure of $75 or more.² Lodging receipts should itemize the nightly rate and taxes separately. Contrary to a common myth, no regulation requires the receipt to show a zero balance at checkout. What it does need to show is that you actually paid for the stay and that the charges match your claim.

Tax Treatment of the Reimbursement

Whether per diem shows up as taxable income depends on how the reimbursement is structured. Under an accountable plan, reimbursements are excluded from the traveler’s gross income and don’t appear on a W-2 or 1099-NEC. The plan qualifies as accountable only if three conditions are met: the expense has a business connection, the traveler provides adequate documentation within 60 days of incurring the cost, and any excess reimbursement is returned within 120 days.¹¹

Miss any of those conditions and the entire reimbursement is treated as paid under a nonaccountable plan. For employees, that means wages on a W-2. For independent contractors, it’s nonemployee compensation on Form 1099-NEC if the total exceeds $600.¹² Late receipts aren’t just an administrative issue. They create a tax bill.

Getting Paid, and the Cost of Getting It Wrong

The Prompt Payment Act sets the government’s deadline for paying proper invoices. For most contract types, payment is due within 30 days after the billing office receives a proper invoice or 30 days after the government accepts the services, whichever is later.¹³ If the government misses the deadline, an interest penalty is owed automatically, without the contractor having to request it.¹⁴

Inflating travel claims or fabricating expenses on a government contract carries consequences well beyond a policy violation. A contractor found to have committed fraud in connection with a government agreement faces potential debarment, which bars the company from all federal procurement and nonprocurement programs across the executive branch.¹⁵ A debarment period generally runs up to three years, though serious cases can go longer. The grounds are broad and include falsification of records, false statements, embezzlement, and any conduct indicating a lack of business integrity that affects responsible performance.¹⁶ Individual employees who submit fraudulent vouchers can face personal criminal liability. For a contracting company, three years of ineligibility for federal work is often existential.

1
U.S. General Services Administration. Per Diem Rates
2
Acquisition.GOV. FAR 31.205-46 Travel Costs
3
GovInfo. 41 CFR 300-3.1 Per Diem Allowance Definitions
4
eCFR. 41 CFR Part 301-11 Subsistence Expenses – Section 301-11.16
5
U.S. General Services Administration. Frequently Asked Questions, Per Diem
6
Acquisition.GOV. FAR 31.205-51 Costs of Alcoholic Beverages
7
U.S. Department of Defense. Maximum Per Diem Rates Outside the Continental United States
8
U.S. Department of State. Office of Allowances
9
eCFR. 41 CFR 301-11.303 Maximum Amount Reimbursed Under Actual Expense
10
eCFR. 41 CFR Part 301-11 Subsistence Expenses
11
Internal Revenue Service. Publication 463, Travel, Gift, and Car Expenses
12
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
13
Acquisition.GOV. FAR 52.232-25 Prompt Payment
14
Acquisition.GOV. FAR Subpart 32.9 Prompt Payment – Section 32.907
15
eCFR. 2 CFR Part 180 Subpart H Debarment
16
eCFR. 2 CFR 180.800 Causes for Debarment