IRS Publication 1542: Per Diem Rates and Tax Rules

For travel between October 1, 2025 and September 30, 2026, the per diem rates published under IRS Publication 1542 and Notice 2025-54 are $319 per day for high-cost localities in the continental United States and $225 per day for everywhere else, unchanged from the prior year.¹ Those figures combine a lodging allowance and a meals and incidental expenses allowance, and they only produce a tax-free reimbursement when the employer runs a proper accountable plan.

What the Daily Rate Covers

Each per diem amount splits into two pieces: lodging, and meals and incidental expenses (M&IE). The split matters because the documentation rules differ.

Lodging covers overnight accommodation, including hotel taxes and service fees. Even when you use the flat per diem, lodging still needs backup. Employers must keep records of actual lodging costs, and self-employed travelers must hold onto hotel receipts. The per diem system does not eliminate lodging substantiation.

M&IE covers food, non-alcoholic beverages, tips for meal service, and a narrow set of incidentals. Those incidentals are limited to tips and fees for porters, baggage carriers, bellhops, and hotel housekeeping staff.² Laundry, dry cleaning, phone calls, and cab fare between the hotel and a restaurant do not fall under this definition, even though travelers commonly treat them as incidental.

If you incur incidentals but pay nothing for meals on a given travel day, a separate $5 per day incidental-expenses-only rate applies, both for CONUS and international travel.¹ This usually comes up when the employer provides all meals directly.

The High-Low Method

Looking up a separate GSA rate for every city gets tedious when employees travel to dozens of destinations. The high-low method collapses every CONUS location into two buckets:

High-cost localities: $319 per day total, consisting of $233 for lodging and $86 for M&IE.
All other CONUS localities: $225 per day total, consisting of $151 for lodging and $74 for M&IE.

The IRS publishes the list of high-cost localities each year in its annual per diem notice. Major cities such as San Francisco, New York City, Washington D.C., and Boston appear year-round. Resort and seasonal destinations rotate on and off the list by calendar period: Gulf Shores, Alabama qualifies only during June and July, and Phoenix/Scottsdale qualifies only in February and March.¹ A city can shift between buckets depending on when you travel.

Consistency and Mid-Year Rate Changes

Once an employer uses the high-low method for any employee during a calendar year, it must stay with that method for all per diem reimbursements through December 31. You cannot bounce between high-low and location-by-location GSA rates within the same year, and an employer using GSA rates during the first nine months of the year cannot switch to high-low before the next calendar year begins.³

When new rates take effect on October 1, an employer already using high-low can either adopt the new rates immediately or keep using the earlier rates through December 31. Either is acceptable, but the same rates must apply to every employee reimbursed under the method during that calendar year.³

Keeping the Reimbursement Tax-Free

The federal per diem rate functions as a ceiling for tax-free reimbursements. Pay at or below the rate under an accountable plan with a proper expense report, and the reimbursement stays off the employee’s W-2 entirely.⁴

An accountable plan requires three things from the employee: report the date and location of travel, state the business purpose, and return any unspent excess within a reasonable time. The IRS treats 60 days as a reasonable deadline for filing the expense report.⁴ If you use only the meals portion of the per diem, the employee still needs lodging receipts.

When any requirement breaks down, the entire per diem payment becomes taxable wages. That happens most often when employers pay a flat travel stipend without requiring expense reports, or when the reports lack the required details. The taxable amount is subject to income tax withholding, Social Security, and Medicare taxes, and the employer owes employment taxes on it.⁵ Calling a payment “per diem” does not make it tax-free; the paperwork does.

If the per diem payment exceeds the federal rate, only the excess is taxable. The portion up to the federal rate stays substantiated and tax-free, and the overage gets reported as wages.⁴ Where the allowance is at or below the federal rate, any unspent portion need not be returned or taxed.

Rules for Self-Employed Travelers

Self-employed taxpayers face a split rule. They can use the federal M&IE per diem rates to cover meals and incidentals without keeping individual meal receipts, but they cannot use per diem rates for lodging. Every hotel bill, Airbnb receipt, and accommodation cost must be documented with actual records.³

The M&IE amount claimed is then subject to the 50% meal deduction limit under IRC Section 274(n). Claim the $74 low-cost M&IE rate for a travel day and only $37 actually reduces taxable income on Schedule C or Schedule F.⁶ Forgetting the 50% cut is one of the more common errors on self-employment returns involving travel.

Transportation Industry Rates

Workers subject to Department of Transportation hours-of-service rules, including long-haul truck drivers, certain railroad employees, airline crew, and merchant mariners, get two advantages.

First, the IRS sets a flat M&IE rate for the transportation industry: $80 per day for CONUS travel and $86 per day for travel outside the continental United States for the 2025-2026 period.¹ The rate applies regardless of the city, so there’s no city-by-city lookup.

Second, these workers deduct 80% of meal expenses instead of the standard 50%.⁶ On an $80 daily M&IE, that’s $64 deductible per day instead of $40. Over a year of road time, the difference runs into thousands of dollars.

Partial Travel Days

You do not get the full M&IE rate on departure and return days. The IRS requires proration and offers two approaches.³

The common method is three-quarters of the applicable M&IE rate on both the first and last day of travel. Under the $74 low-cost rate, that works out to $55.50 per edge day. The alternative is any other consistent proration method that reflects reasonable business practice. An employer may, for example, treat two calendar days of per diem covering travel from 9 a.m. one day to 5 p.m. the next as no more than the federal rate for two full days, even though a federal employee would receive only one and a half days of M&IE for the same trip. Whichever method you pick, apply it consistently.

When Per Diem Does Not Apply

Publication 1542 and the high-low rates cover only the continental United States. Alaska, Hawaii, and all U.S. territories fall outside. The Department of Defense sets per diem rates for Alaska and Hawaii, and the U.S. Department of State publishes rates for international destinations.⁷ Cross those boundaries and you need the correct agency’s rates.

Per diem also only applies to travel that qualifies as temporary. The dividing line is one year. If you realistically expect a work assignment to last one year or less, travel expenses are deductible. Any assignment expected to last longer than a year is indefinite, and travel expenses to that location are not deductible at all.⁸ Expectation controls the outcome: if a six-month project changes at month four and you now realistically expect 14 months, expenses become nondeductible from the point your expectation changes, not at the one-year mark.

The whole system hinges on being away from your tax home, which is generally the city or area where your main place of business is located, regardless of where your family lives.³ If you work in multiple locations, the IRS weighs total time spent, level of business activity, and income earned at each. Without a fixed tax home, the IRS treats you as itinerant and you’re never considered traveling away from home, so no travel deductions apply.

1
Internal Revenue Service. 2025-2026 Special Per Diem Rates Notice 2025-54
2
Internal Revenue Service. Revenue Procedure 2002-63
3
Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses
4
Internal Revenue Service. Per Diem Rates Frequently Asked Questions
5
Internal Revenue Service. Per Diem Payments Frequently Asked Questions
6
Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses
7
U.S. Department of State. Per Diem Rates
8
Internal Revenue Service. Topic No. 511, Business Travel Expenses