Per diem laws in Texas operate on two tracks: private employers follow IRS accountable-plan rules and generally use the U.S. General Services Administration (GSA) rates as their benchmark, while state agencies layer on the Texas Comptroller’s travel regulations. For federal fiscal year 2026, the standard continental U.S. rate is $110 per night for lodging and $68 per day for meals and incidentals, with higher figures in major Texas cities.
The Rules That Govern Per Diem in Texas
Texas has no standalone per diem statute for private employers. Taxability is controlled by the IRS through Publication 463 and the accountable-plan regulations at 26 CFR § 1.62-2.1Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses The dollar figures come from the GSA, which sets the rates federal agencies use and most private employers adopt as a ceiling for tax-free reimbursement.2U.S. General Services Administration. Per Diem Rates
State agencies carry an added burden. Texas Government Code § 660.007 requires every state agency to minimize travel costs and confirm each arrangement is the most cost-effective option available.3State of Texas. Texas Government Code Section 660.007 – Conservation of Funds Title 34, Chapter 5, Subchapter C of the Texas Administrative Code sets processing rules for state-funded travel vouchers, and the Comptroller’s Textravel guide translates those into daily procedure.4Texas Administrative Code. Title 34 Public Finance – Part 1 Comptroller of Public Accounts – Chapter 5 Funds Management (Fiscal Affairs)
Who Qualifies for Per Diem
Per diem applies to employees traveling away from their tax home for business who need to sleep or rest overnight. The IRS defines your tax home as the city or general area of your main place of business, not necessarily where you live. Only expenses outside that area qualify for tax-free treatment.1Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
Watch the one-year cutoff. If a work assignment at a single location is realistically expected to last more than a year, the IRS treats it as indefinite, the location becomes the employee’s new tax home, and any per diem paid is fully taxable as wages. The rule turns on what the parties reasonably expected at the outset, not on how long the assignment actually lasted.5Internal Revenue Service. Topic No. 511, Business Travel Expenses
Independent contractors generally do not receive employer-provided per diem because they handle their own travel costs. Union or company travel policies can affect eligibility, but the IRS taxability rules apply no matter what the policy says.
What Per Diem Covers
Lodging
The lodging portion covers hotel stays and other temporary accommodations. GSA publishes nightly caps by location and updates them each fiscal year. Austin, for example, runs from $173 to $187 per night depending on the month. Private employers may set their own lodging allowances, but paying above the GSA rate without collecting receipts creates taxable income on the excess.
Texas state employees must use GSA lodging rates for both in-state and out-of-state travel within the continental United States.6Texas.gov. Textravel – Lodging Reimbursement If the GSA rate is too low for available hotels, the employee can shift meal-allowance savings toward lodging, or the agency can request a higher rate with documentation showing local conditions justify it.7Texas Comptroller. Travel Audits and Exceptions
Meals and Incidentals
The M&IE rate covers breakfast, lunch, dinner, restaurant tips, and small gratuities for hotel staff and baggage handlers. At the FY2026 standard $68 rate, the breakdown is $16 for breakfast, $19 for lunch, $28 for dinner, and $5 for incidentals. Higher-cost locations get elevated M&IE rates; Austin sits at $80 per day. Restaurant taxes and tips are built into the rate, so travelers do not get reimbursed separately for those.8U.S. General Services Administration. Frequently Asked Questions, Per Diem
On the first and last day of a trip, federal employees receive only 75 percent of the destination’s M&IE rate. At the standard $68 rate, that comes to $51.8U.S. General Services Administration. Frequently Asked Questions, Per Diem Many private employers adopt the same proration, and Texas state agencies follow it as well.
Incidentals under the GSA definition are narrow: fees and tips for porters, baggage carriers, and hotel staff.8U.S. General Services Administration. Frequently Asked Questions, Per Diem Laundry, dry cleaning, and phone calls are not included. Federal travelers can claim laundry as a separate miscellaneous expense only after at least four consecutive nights of lodging, and the employer decides whether to reimburse it.9Federal Register. Federal Travel Regulation – Clarifying Agency Responsibilities
Non-Overnight Travel
Same-day travel changes the tax picture. The IRS treats meal reimbursements for trips without an overnight stay as taxable income, and the employer must report the amount on the W-2. Texas state employees can still receive non-overnight meal reimbursement, but only when they are outside their designated headquarters for at least six consecutive hours, and the payment cannot exceed $36. That amount is reported as taxable wages.10Texas.gov. Textravel – Non-Overnight Travel
Hotel Occupancy Tax
Texas charges a 6 percent state hotel occupancy tax on top of any local hotel taxes. State employees on official business are exempt from the state portion under Texas Tax Code § 156.103(a), but still owe local hotel taxes.11Texas Comptroller. Hotel Occupancy Tax FAQs Present a Hotel Occupancy Tax Exemption Certificate (Form 12-302) at check-in to avoid being charged the state portion. Private-sector travelers get no such exemption and should budget for the full tax.
Rates and the High-Low Method
The GSA publishes per diem rates for every county in the continental United States, updated each federal fiscal year (October 1 through September 30). Locations without a specific listing default to the standard $110 lodging and $68 M&IE. Major Texas metros carry higher rates that reflect local hotel and food costs, and some cities vary by month.2U.S. General Services Administration. Per Diem Rates Employers must look up the correct figure for the employee’s specific destination, not the nearest large city.
Employers wanting a simpler system can use the IRS high-low method, which divides all continental U.S. locations into two tiers. For the period beginning October 1, 2025, the combined per diem is $319 per day in high-cost localities and $225 elsewhere. The meals-only portion is $86 in high-cost areas and $74 in all other locations.12Internal Revenue Service. Special Per Diem Rates (Notice 2025-54) The IRS updates the high-cost city list annually.
One restriction: an employer using the high-low method for an employee in a calendar year must stick with it for that same employee for the rest of the year. Switching between high-low and full GSA rates mid-year for the same traveler is not allowed.
Tax Treatment
Accountable Plans Keep Per Diem Tax-Free
The IRS classifies every reimbursement arrangement as either accountable or non-accountable. An accountable plan must satisfy three conditions: the expenses have a business connection, the employee substantiates the travel details to the employer, and any payment exceeding substantiated expenses is returned within a reasonable period.13eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements Meet all three and per diem stays off the W-2, with no payroll tax owed on those payments.
Reasonable period has a safe harbor: 120 days after the expense is paid or incurred under the fixed-date method, or 120 days after the employer issues a periodic statement asking for the return.13eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements Miss the window and the excess becomes taxable.
Non-Accountable Plans and Excess Payments
Flat travel allowances paid without substantiation, or arrangements that let employees keep amounts above what they spent, are non-accountable. The full payment becomes taxable wages subject to income tax withholding, Social Security, and Medicare. Even under an otherwise accountable plan, per diem paid above the applicable federal rate is taxable unless the employer collects receipts for the excess.14Internal Revenue Service. Per Diem Payments Frequently Asked Questions
Per Diem and Overtime Under the FLSA
Per diem intersects with overtime in a way many employers miss. Under the Fair Labor Standards Act, an employer must include all remuneration for employment in the regular rate of pay. Travel expense reimbursements that reasonably approximate the employee’s actual costs are excluded.15Office of the Law Revision Counsel. 29 USC 207 – Maximum Hours
Trouble starts when per diem payments are disproportionately large compared to actual spending. A 2024 Department of Labor opinion letter confirmed that if per diem exceeds the employee’s reasonably approximate expenses, the excess must be folded into the regular rate when computing overtime pay.16U.S. Department of Labor. FLSA Opinion Letter FLSA2024-01 An employer paying $150 per day when the employee actually spends $80 would need to treat the $70 difference as part of the regular rate for overtime. Sticking to GSA rates is the cleanest way to sidestep the problem, because the DOL generally treats federal per diem as a reasonable approximation of travel costs.17U.S. Department of Labor. Fact Sheet 56A – Overview of the Regular Rate of Pay Under the Fair Labor Standards Act (FLSA)
Documentation and Recordkeeping
An accountable plan does not mean zero paperwork. The IRS requires employees to report the dates, locations, and business purpose of each trip. Under a standard per diem arrangement, employees do not have to submit individual meal or incidental receipts, but they do need to give the employer enough detail to verify the travel and confirm the correct rate.1Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
Texas state employees face more. They must submit travel vouchers detailing lodging and meal allowances, along with hotel receipts. Missing documentation can lead to denied reimbursements or repayment demands from the agency.
On retention, the IRS requires employers to keep employment tax records for at least four years after the tax is due or paid, whichever is later.18Internal Revenue Service. How Long Should I Keep Records Payroll records under the FLSA must be preserved for at least three years.19U.S. Department of Labor. Fact Sheet 21 – Recordkeeping Requirements Under the Fair Labor Standards Act (FLSA) Keeping per diem records for four years covers both.
Penalties for Getting It Wrong
If a per diem plan fails the accountable-plan test, every dollar paid becomes taxable wages retroactively. That means back taxes, interest, and penalties for the employer (payroll taxes) and the employee (income tax). Paying above federal rates without collecting receipts requires reporting the excess on the W-2, and skipping that step invites IRS scrutiny during audits.14Internal Revenue Service. Per Diem Payments Frequently Asked Questions
State employees face separate consequences. False or inflated travel claims can lead to mandatory repayment, termination, or criminal prosecution for fraud. Agencies themselves can face financial management findings if they fail to enforce documentation standards or routinely approve lodging above GSA rates without proper justification.
The most common private-employer mistake is treating per diem as a flat bonus instead of an expense reimbursement. Paying the same daily amount regardless of whether the employee actually traveled, or requiring no expense report at all, converts the entire payment into taxable wages and opens the employer to both IRS and DOL liability.