Per Diem Payments: Rates, Accountable Plans, and Taxability

Per diem payments are flat daily allowances your employer pays to cover lodging, meals, and incidental costs while you travel for work, and they stay tax-free when they fall within federal per diem rates and your employer runs the reimbursement through an accountable plan. For fiscal year 2026, the standard federal rate is $110 per night for lodging and $68 per day for meals and incidental expenses in most locations, with higher amounts set for roughly 300 designated high-cost areas.¹ When either side of that arrangement breaks down, part or all of the payment becomes taxable wages.

What Per Diem Covers

Per diem covers three categories: lodging, meals, and incidental expenses. Lodging means a hotel, motel, or similar accommodation while you work away from home. The meals and incidental expenses portion, known as M&IE, covers breakfast, lunch, dinner, and small costs like tips for baggage handlers and hotel housekeeping. Taxes and gratuities on meals are already built into the M&IE rate, so your employer will not reimburse those separately.²

Transportation is not part of per diem. Airfare, car rentals, personal vehicle mileage, parking, and tolls are handled through separate reimbursement policies with their own mileage rates and receipt requirements.² That distinction matters because a per diem inflated to cover gas or a flight will exceed the federal rate and produce a taxable overage.

Federal Per Diem Rates for Fiscal Year 2026

The General Services Administration sets domestic rates for the continental United States and updates them each fiscal year.³ Fiscal year 2026 runs from October 1, 2025 through September 30, 2026. The standard rate for most locations is $110 for lodging and $68 for M&IE. Roughly 300 non-standard areas qualify for higher rates based on local hotel and food prices, and M&IE rates in those areas range from $68 to $92 per day.⁴ For international travel, the State Department publishes rates based on cost-of-living conditions at each foreign location.⁵

The High-Low Simplification Method

Employers who do not want to track hundreds of location-specific rates can use the high-low method, which collapses all domestic locations into two tiers. For fiscal year 2026, the high-cost rate is $319 per day and the standard rate is $225 per day.⁶

Incidental Expenses Only

When an employer provides lodging and meals directly, you can still receive a small per diem covering only incidental expenses. That rate is $5 per day for any domestic or international location.⁶

The Accountable Plan Rules That Keep Per Diem Tax-Free

Whether your per diem shows up as taxable wages on your W-2 depends almost entirely on whether your employer’s reimbursement arrangement qualifies as an accountable plan. An accountable plan must satisfy three requirements:

Business connection. The expense must relate to work you performed as an employee.
Substantiation. You must give your employer enough information to verify the time, place, and business purpose of the trip within a reasonable timeframe.
Return of excess. If you receive more than you can substantiate, you must give the difference back within a reasonable timeframe.

When all three conditions are met, per diem payments up to the federal rate are excluded from your gross income and exempt from income tax withholding, Social Security, and Medicare taxes.⁷ These payments do not appear as wages on your W-2 at all.⁸

When Per Diem Becomes Taxable

Two situations shift per diem into taxable wages: the plan is nonaccountable, or the payment runs above the federal rate.

Nonaccountable Plans

If your employer does not require you to substantiate travel, or lets you keep excess funds without returning them, the entire per diem is treated as wages. The full amount lands on your W-2 and is subject to federal income tax, Social Security, and Medicare withholding.⁷ Calling a payment “per diem” does not make it tax-free. The plan structure does.

Payments Above the Federal Rate

Even inside a properly run accountable plan, any amount above the federal rate for that location and date is taxable. If the federal rate is $200 and your employer pays $250, that extra $50 counts as supplemental wages. Your employer must withhold federal income tax on the excess at a flat 22%, or 37% if your total supplemental wages for the year exceed $1 million.⁹ Social Security and Medicare withholding apply to the excess as well. Only the portion at or below the federal rate stays tax-free.

Which Trips Actually Qualify

Not every work trip qualifies for tax-free per diem. The IRS requires that you be “traveling away from home,” meaning your duties keep you away from the general area of your tax home for substantially longer than a normal workday, and you need sleep or rest to meet the demands of your work. You do not have to be gone overnight, but the break must be long enough for meaningful rest. Napping in your car between meetings does not count.¹⁰

Your tax home is generally the entire city or area where your main place of work sits, regardless of where your family lives.¹¹ Commuting between your residence and your regular office never qualifies, even if the drive is long.

The One-Year Rule

A temporary assignment at a location away from your tax home qualifies for tax-free per diem, but only if the assignment is realistically expected to last one year or less. Once your employer expects you to stay in one location for more than 12 months, the IRS considers the assignment indefinite, and the new location becomes your tax home.¹¹ After that point, per diem for living expenses at that location becomes taxable, even if your employer keeps calling the payments travel allowances.¹⁰ A six-month project extended to 14 months does not grandfather the original treatment; from the date you know the assignment will run past a year, tax-free status ends going forward.

Substantiation and Return Deadlines

The IRS does not leave “reasonable timeframe” open to interpretation. Treasury regulations provide a safe harbor with three specific windows:⁷

Any travel advance must be paid within 30 days of when the expense will be incurred.
You must submit your expense report verifying the dates, destination, and business purpose within 60 days of when the expense was paid or incurred.
Any per diem exceeding your substantiated expenses must be returned to your employer within 120 days.

Miss those deadlines and the unsubstantiated or unreturned amount gets reclassified as taxable wages on your next paycheck, with income tax and payroll tax withheld as if it were regular pay.⁷ Your substantiation report has to establish the amount, date, location, and business purpose of each expense.¹² When you use a per diem for M&IE, individual meal receipts are not required; the per diem rate itself substitutes for that documentation. You still have to prove the trip happened, where you went, and why.

Partial Travel Days

You do not receive the full daily M&IE rate on your departure and return days. Under federal travel regulations, the first and last calendar days of a trip are reimbursed at 75% of the applicable M&IE rate, and full days between departure and return get 100%. For trips longer than 12 hours but less than 24, the 75% rate applies to each travel day.¹³ Publication 463 gives self-employed individuals two proration options for partial days: three-quarters of the standard meal allowance, or any consistently applied method that reflects reasonable business practice.¹⁰

If You Are Self-Employed or Own the Business

Working for yourself narrows the rules. Self-employed people can claim the standard meal allowance for business travel instead of tracking every meal receipt, but they cannot use federal per diem rates for lodging. Lodging has to be documented with actual receipts. Even with the standard meal allowance, you can deduct only 50% of the meal cost, and you still need records showing the time, place, and business purpose of each trip. These deductions go on Schedule C, or Schedule F for farming, rather than Form 2106.¹⁰

If you own more than 10% of the business paying the per diem, the standard per diem substantiation methods are off the table entirely. Revenue Procedure 2019-48 blocks the per diem and high-low methods for employees related to the employer, using a 10% ownership threshold.¹⁴ Owner-employees of S corporations, partners with significant partnership interests, and majority shareholders of C corporations have to substantiate every travel expense with actual receipts and records.

What You Report at Tax Time

For employees receiving per diem through a properly structured accountable plan, the tax-free portion stays completely off your return. You do not report it, deduct it, or do anything with it at tax time. Only the taxable excess, if any, appears as wages on your W-2.

If your employer runs a nonaccountable plan, the full per diem shows up as W-2 wages, and here the news is not good. Before 2018, employees could claim unreimbursed business expenses as a miscellaneous itemized deduction subject to a 2% adjusted gross income floor. The Tax Cuts and Jobs Act eliminated that deduction starting in 2018.¹⁵ The One Big Beautiful Bill Act (P.L. 119-21) later made that elimination permanent, so employees cannot deduct unreimbursed travel costs on their federal returns regardless of how much they spend out of pocket.

That changes the stakes of the accountable plan question. Under the old rules, a nonaccountable plan was inconvenient but recoverable at tax time. Now, if your employer pays per diem through a nonaccountable plan, you pay income tax and payroll taxes on the full amount with no offsetting deduction. If that describes your situation, raise the accountable plan structure with your employer’s payroll or finance team. The fix is procedural rather than expensive.

1
U.S. General Services Administration. GSA Releases FY 2026 CONUS Per Diem Rates for Federal Travelers
2
U.S. General Services Administration. Per Diem FAQs
3
U.S. General Services Administration. Per Diem Rates
4
Federal Register. Maximum Per Diem Reimbursement Rates for the Continental United States (CONUS)
5
U.S. Department of State. Office of Allowances
6
Internal Revenue Service. Notice 2025-54 – 2025-2026 Special Per Diem Rates
7
eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements
8
Internal Revenue Service. Nonresident Aliens and the Accountable Plan Rules
9
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
10
Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses
11
Internal Revenue Service. Topic No. 511, Business Travel Expenses
12
eCFR. 26 CFR 1.274-5 – Substantiation Requirements
13
eCFR. 41 CFR Part 301-11 – Subsistence Expenses
14
Internal Revenue Service. Revenue Procedure 2019-48
15
United States Congress. Expiring Provisions in the Tax Cuts and Jobs Act (TCJA, P.L. 115-97)