For travel on or after October 1, 2025, the IRS per diem rates under the high-low method are $319 per day in designated high-cost areas ($233 lodging, $86 meals and incidentals) and $225 per day everywhere else in the continental United States ($151 lodging, $74 meals and incidentals). Transportation workers subject to Department of Transportation hours-of-service rules use a separate rate: $80 per day within the continental U.S. and $86 outside it.1Internal Revenue Service. Notice 2025-54 – 2025-2026 Special Per Diem Rates These rates replace the need to collect receipts for meals and, in most employer arrangements, hotel stays, but only if the paperwork behind the payment holds up.
The daily rate has two parts. The lodging portion covers overnight accommodations. The meals and incidental expenses (M&IE) portion covers all meals, room service, laundry, dry cleaning, and tips for people like food servers and luggage handlers.2Internal Revenue Service. Per Diem Rates FAQ Airfare, rental cars, and other transportation to the destination are not part of per diem and still require actual receipts.
Choosing Between the Standard GSA Method and the High-Low Method
There are two ways to set the applicable rate. The standard method uses per diem figures published by the General Services Administration for roughly 300 specific locations in the continental United States, with a default rate for everywhere else.3U.S. General Services Administration. Per Diem Rates San Francisco, New York, and a small town in Nebraska each carry their own figure.
The high-low method sorts every destination into one of two buckets: high-cost or everything else, at the $319 and $225 rates above. Employers reimbursing travel to many different cities often prefer it because tracking two rates is easier than tracking hundreds.
One switching rule matters. Once an employer uses the high-low method for a particular employee during a calendar year, that method has to stay in place for that employee’s continental U.S. travel through the end of the year. Different employees at the same company can be on different methods, but one employee cannot be moved between the two mid-year. When the rates update on October 1, the employer can either keep the old rates in effect for the final quarter or switch to the new ones, as long as the choice is applied consistently across all employees on that method.4Internal Revenue Service. Rev. Proc. 2019-48
Keeping the Payment Tax-Free: The Accountable Plan
Whether a per diem check is tax-free or taxable wages depends on whether the reimbursement arrangement qualifies as an accountable plan. Three conditions must all be met:
- Business connection. The reimbursement covers expenses the employee incurred while doing work for the employer.
- Substantiation. The employee provides adequate documentation of each expense within a reasonable time.
- Return of excess. The employee returns any amount that exceeds substantiated expenses within a reasonable time.
Miss any one of these and the entire arrangement becomes a nonaccountable plan. Every dollar paid under it is treated as taxable wages subject to income tax withholding, Social Security, Medicare, and federal unemployment tax.5eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements The consequence hits the full amount, not just the unsubstantiated portion.
The IRS defines “reasonable time” through safe harbor deadlines: advances should be received within 30 days of an expected expense, substantiation submitted within 60 days of when an expense was paid, and any excess reimbursement returned within 120 days.6Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses Most accountable plan failures happen because someone missed those windows.
What Records You Still Need to Keep
Per diem removes the need for individual meal receipts. It does not remove recordkeeping. For every business trip, four elements need to be documented: the amount, the dates of travel, the location (city and state or locality), and the business purpose.7eCFR. 26 CFR 1.274-5 – Substantiation Requirements
The business purpose has to be specific enough for a reviewer to understand why the trip was necessary. “Client meeting” is thin. “Met with Acme Corp. purchasing team to finalize Q3 supply agreement” is what an auditor is looking for. Location matters because it drives the rate; “traveled to California” is not enough when San Francisco and Fresno carry different figures.
A simple travel log with date, destination, and a one-sentence business purpose covers the requirement. Submit it within 60 days of the trip to stay inside the safe harbor.6Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses
Partial Travel Days
The first and last day of a trip are not full 24-hour days away, so the M&IE portion is prorated. The IRS allows two methods and most people use the simpler one: 75% of the applicable M&IE rate for each partial day.6Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses At the $74 M&IE rate, that is $55.50 for departure day and $55.50 for return day, regardless of flight time.
Lodging does not get prorated. It is tied to whether a room was occupied for the night. Check in Tuesday night, check out Wednesday morning, that is one night of lodging.6Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses The 75% rule is for M&IE only.
How Per Diem Shows Up on a W-2
When an employer reimburses at or below the federal rate under an accountable plan, the payment is not wages. No federal income tax withholding, no Social Security or Medicare tax, and the amount does not appear as income on the employee’s W-2.8Internal Revenue Service. Per Diem Payments Frequently Asked Questions
When the employer pays more than the federal rate, the excess is taxable. That excess goes in boxes 1, 3, and 5 of the W-2 and payroll taxes are withheld on it. The substantiated, nontaxable portion is reported separately in Box 12 with Code L.9Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3 The split reporting lets everyone see what was a legitimate reimbursement and what was effectively extra pay.
The worst case is a failed accountable plan. If substantiation is missing, if excess amounts stay in the employee’s pocket, or if there is no genuine business connection, the entire payment becomes taxable wages subject to income tax, FICA, FUTA, and all other employment taxes.5eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements The employer then has to go back and adjust withholding and reporting for the affected period.
Rules for Self-Employed Taxpayers
Self-employed individuals can use per diem, but only for the meals portion. There is no per diem rate for lodging when you work for yourself. Actual receipts are required and the real cost is what you deduct.8Internal Revenue Service. Per Diem Payments Frequently Asked Questions
A self-employed consultant traveling to a high-cost city can claim the $86 M&IE rate without saving every lunch receipt, but still needs a hotel bill or comparable documentation for the lodging deduction. The M&IE portion is also subject to the 50% meal limit below, which cuts the actual tax benefit further.
The 50% Meal Deduction Limit
Even when per diem is properly substantiated, the meal portion is not fully deductible. Federal law caps the deduction for food and beverages at 50% of the expense.10Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses At the $74 M&IE rate, only $37 a day reduces taxable income. The cap applies whether you use the standard GSA rates or the high-low method.
Workers subject to DOT hours-of-service rules get a better deal. Truck drivers, airline crew, railroad workers, and similar transportation employees deduct 80% of their meal expenses instead of 50%.10Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses
For employers reimbursing employees under an accountable plan, the 50% limit applies at the employer level. The employee still receives the full per diem amount tax-free. The employer can only deduct half of the meal portion (or 80% for transportation workers) on the company’s return, which is the number to use when budgeting the true after-tax cost of employee travel.