Per Diem Travel Reimbursement Rules: Rates and Accountable Plans

Per diem travel reimbursement rules decide whether a daily travel allowance lands in your pocket tax-free or gets taxed as wages. The short version: payments made under an IRS “accountable plan,” kept within federal per diem rates, and tied to overnight business travel away from your tax home are excluded from income. Everything outside those lines becomes taxable. For travel through September 30, 2026, the IRS high-low simplified rate is $319 per day in designated high-cost cities and $225 everywhere else in the continental United States.¹

The Accountable Plan Requirement

The IRS splits per diem into two worlds. Under an accountable plan, reimbursements are excluded from the employee’s gross income and don’t appear on the W-2. Without one, every dollar is treated as wages subject to income tax withholding, Social Security, and Medicare.²

Three conditions have to be met for the plan to qualify:³

A business connection. The expenses arise from work performed as an employee. A weekend added on for sightseeing doesn’t count.
Adequate accounting. The employee reports the dates, destinations, and business purpose of each trip to the employer within a reasonable time.
Return of excess. Any per diem paid beyond what the employee substantiated has to be returned.

“Reasonable time” has a safe harbor. Receiving an advance within 30 days of the expense, substantiating the trip within 60 days, and returning any excess within 120 days all qualify automatically.³ Miss those windows and the arrangement can be reclassified as non-accountable, which means the employer owes payroll taxes on the full amount and the employee sees it as income.

Who Qualifies and When

Eligibility starts with your tax home, which the IRS defines as the general area of your main place of business, not necessarily where your family lives.⁴ To get tax-free per diem you must travel away from that tax home for a period substantially longer than an ordinary workday and need sleep or rest before returning.⁵

This is the overnight rule. A same-day trip to a nearby city doesn’t generate tax-free per diem, and any meal allowance an employer pays for a day trip is taxable income.

The One-Year Limit on Temporary Assignments

Per diem stops being tax-free when an assignment shifts from temporary to indefinite. The IRS treats any assignment realistically expected to last more than one year as indefinite, which makes travel expenses to that location nondeductible and per diem payments taxable wages.⁵

The trigger is your realistic expectation, not the actual length of the stay. Accept a six-month project that later stretches to 14 months, and your per diem becomes taxable on the date your expectation changed, not retroactively.⁴ From that point on, the assignment location becomes your new tax home. Contractors and project-based workers get caught by this often, so flag any assignment that might extend past 12 months with payroll early.

Current Rates and What They Cover

Each per diem rate splits into a lodging allowance and a meals and incidental expenses (M&IE) allowance. The M&IE portion covers meals, taxes on meals, and tips. Incidental expenses under federal travel regulations means fees and tips for porters, baggage carriers, and hotel staff, and nothing else.⁶

Rather than looking up a unique rate for every city, many private employers use the IRS high-low simplified method: one flat rate for designated high-cost cities and a lower one everywhere else. For travel through September 30, 2026, that’s $319 per day in high-cost locations and $225 for all other areas within the continental U.S. The meal portions are $86 and $74 respectively.¹ The IRS publishes updated rates each fall, so check for a new notice around October.

Two special rates round out the picture. If the employer reimburses actual meal costs but wants a flat allowance for incidentals only, the incidental-expenses-only rate is $5 per day anywhere. Transportation-industry workers who regularly travel to multiple cities can use a special M&IE rate of $80 per day within the continental U.S. and $86 outside it, regardless of destination.¹

Partial Days and Lodging Taxes

Federal travel regulations allow only 75 percent of the M&IE rate on the day you depart and the day you return, with full 100-percent days in between.⁷ Many private employers use the same 75-percent rule for consistency, though they aren’t required to. If the trip lasts more than 12 hours but less than 24, the 75-percent rate applies for the whole trip.

Lodging taxes are handled separately for domestic travel. The GSA’s per diem rate does not include lodging taxes within the continental U.S.; those are reimbursed as a separate miscellaneous expense, limited to taxes on the reimbursable lodging amount. Keep the hotel receipt to substantiate the tax. For international trips, the Department of State builds lodging taxes into its foreign per diem rates, and separate claims aren’t allowed.⁶

When the Payment Exceeds the Federal Rate

Employers can pay more than the federal per diem rate, but the excess is taxable. The amount up to the federal limit stays tax-free under an accountable plan. Anything above becomes wages subject to income tax withholding, Social Security, and Medicare.⁸

On the W-2, the nontaxable portion appears in box 12 under code L. The excess is folded into boxes 1, 3, and 5 alongside regular wages.⁸ If your pay stub shows per diem being withheld for taxes, either the employer is paying above the federal rate or the plan isn’t set up as accountable. Ask payroll which one it is.

Rules for Self-Employed Workers

Self-employed workers and independent contractors can use per diem rates for meals but not for lodging. Lodging requires actual receipts.³ The standard meal allowance lets you claim the federal M&IE rate for each day of business travel in place of saving every restaurant receipt, though you still document dates, destinations, and business purpose.

The bigger constraint is the 50-percent limit on meal deductions. Self-employed filers generally deduct only half of meal expenses, including per diem claimed under the standard meal allowance.³ So a $74 M&IE rate produces a $37 deduction. One exception: if a client reimburses you directly and you provide adequate records to that client, the 50-percent limit shifts to the client.

Partial days follow the same 75-percent rule that applies to federal employees on departure and return days.³

Records and Timing

“Simplified” doesn’t mean undocumented. Even without individual meal receipts, the IRS requires four things for each trip: dates of travel, destination, business purpose, and the daily rate that applies.³ Lodging is the exception on receipts; keep the hotel bill regardless of whether the employer pays a flat per diem or reimburses actual costs.

Timing is where a compliant plan quietly falls apart. Expenses must be substantiated within 60 days of being paid or incurred, and excess per diem must be returned within 120 days to stay inside the safe harbor.³ Many employers set tighter internal deadlines. Sit on an expense report and miss the window, and the employer has grounds to treat the payment as non-accountable, converting the whole amount into taxable wages. Filing within a week of returning is the simplest way to protect the tax-free status of the payment.

1
Internal Revenue Service. 2025-2026 Special Per Diem Rates (Notice 2025-54)
2
eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements
3
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
4
Internal Revenue Service. Foreign Earned Income Exclusion – Tax Home in Foreign Country
5
Internal Revenue Service. Topic No. 511, Business Travel Expenses
6
U.S. General Services Administration. Frequently Asked Questions, Per Diem
7
eCFR. 41 CFR Part 301-11 – Subsistence Expenses
8
Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3