What’s a Per Diem? Rates, Taxes, and Documentation

A per diem is a fixed daily allowance an employer pays an employee to cover lodging, meals, and small incidental costs during business travel, in place of tracking and receipting every purchase. For fiscal year 2026, the standard federal per diem across most of the continental United States is $178 a day, split into $110 for lodging and $68 for meals and incidental expenses.¹ Roughly 300 higher-cost areas get their own rates, and separate rules apply to self-employed travelers, partial travel days, and transportation workers.

What a Per Diem Covers

A per diem payment has two parts. Lodging covers a hotel room or similar overnight stay. The meals and incidental expenses portion, usually called M&IE, is a single flat amount that bundles breakfast, lunch, dinner, and a narrow list of incidentals.²

The incidental piece is narrower than most travelers assume. It covers fees and tips paid to porters, baggage carriers, hotel staff, and staff on ships.³ Taxes and gratuity on meals are already built into the M&IE rate, so they aren’t reimbursed on top of it.

Several costs travelers expect to be included aren’t: taxi and rideshare fares, personal phone calls, and short-trip dry cleaning. Laundry and cleaning may factor into lodging on assignments of a week or more, but that runs through lodging reimbursement, not the incidental category.²

Who Sets Per Diem Rates

Three federal agencies divide the map. The General Services Administration sets rates for the continental United States, where one standard rate covers most locations and individually calculated rates apply to about 300 higher-cost areas. The Department of State handles foreign per diem. The Department of Defense covers Alaska, Hawaii, and U.S. territories.⁴

All three update rates on October 1, the start of the federal fiscal year. For FY 2026, which runs October 1, 2025 through September 30, 2026, GSA held the FY 2025 numbers steady, leaving the standard CONUS per diem at $110 for lodging and $68 for M&IE.⁵ Across CONUS locations, M&IE tiers range from $68 to $92 depending on how expensive the area is.¹

Private employers are free to follow the federal rates or set their own, but the federal figures are the yardstick the IRS uses to decide how much of a payment is tax-free.

Partial Days and Provided Meals

The full M&IE rate applies only to days spent entirely on travel status. The first and last day of a trip lasting 24 hours or more pay 75% of the M&IE rate. The same 75% applies to a trip that lasts more than 12 hours but less than 24.² On a standard $68 M&IE day, that works out to $51 for a first or last day. A three-day trip runs 75% on day one, 100% on day two, 75% on day three. Trips of 12 hours or less generally don’t qualify for M&IE at all.

When meals are provided by the government or included in a conference registration fee, the M&IE claim has to be reduced by the value of those meals. GSA publishes a breakdown for each M&IE tier showing the deduction for each meal.²

How Per Diem Is Taxed

The Accountable Plan Rule

Per diem payments are free from income tax and payroll tax only when they’re paid under what the IRS calls an accountable plan. Three conditions have to be met: a business connection for the travel, adequate substantiation of the expenses, and a rule that the employee returns any excess amount.⁶ The controlling guidance is Revenue Procedure 2019-48, which replaced the older Rev. Proc. 2011-47.⁷

If any of the three conditions fails, the whole arrangement is a nonaccountable plan. Every dollar paid under it is treated as wages, reported on the employee’s Form W-2, and subject to income tax withholding plus FICA and FUTA.⁶

When the Payment Exceeds the Federal Rate

An employer can pay more than the federal per diem, but the excess portion is taxable. The reimbursement up to the federal rate goes into box 12 of Form W-2 under code L and stays tax-free. Anything above the federal rate shows up in box 1 as ordinary wage income, subject to normal income tax withholding and payroll taxes.⁸ Federal income tax rates for 2026 range from 10% to 37%, so the hit depends on earnings and filing status.⁹

Lodging Paid Two Ways

An employer can pay a combined per diem covering lodging plus M&IE, or pay M&IE only and reimburse actual lodging separately. Under the combined method, no lodging receipt is required because the single rate is treated as covering everything.⁷ Under the meals-only method, actual lodging is reimbursed on the hotel receipt.

One catch: if the employer has no reasonable belief the employee will incur lodging expenses, for example when the employee is staying with family, the whole allowance is treated as a meals-only per diem regardless of how it was labeled.⁷ You can’t pocket a lodging reimbursement for a room you never rented.

Self-Employed Travelers

If you’re self-employed, per diem works differently and the rules are tighter. You can use the federal M&IE rate to calculate your meal deduction instead of keeping every restaurant receipt, but there is no per diem option for lodging. Self-employed travelers deduct lodging at actual cost, supported by receipts.¹⁰

To claim M&IE per diem as a self-employed deduction, you still need to document the time, place, and business purpose of each travel day.⁷ The 50% meal deduction limit then applies to the full M&IE amount claimed. Using the $68 standard rate for a full travel day, the deductible amount on Schedule C is $34.

Transportation Industry Rate

Truck drivers, airline crew, railroad workers, and others who travel as a regular part of the job use a separate M&IE rate rather than looking up each city. For the period beginning October 1, 2025, that rate is $80 a day for travel within the continental United States and $86 a day for travel outside CONUS.¹¹ The flat rate exists because transportation workers routinely cross multiple per diem localities in a single day. The usual substantiation still applies: dates, routes, and business purpose.

What You Have to Document, and When

Per diem cuts out most receipt-keeping for meals, but three things still need to be recorded for every trip: the dates of travel, the destination, and the business purpose. This typically lives in an internal expense report or travel software.⁷ Under the combined per diem method, lodging receipts aren’t required. Under the meals-only method, the hotel invoice is.

The IRS gives two safe harbor timelines for paperwork. Under the fixed-date method, an expense must be substantiated within 60 days after being paid or incurred. Under the periodic-statement method, the employer sends a statement at least once a quarter asking for documentation, and the employee has 120 days from the date of that statement to respond.⁶

Missing those deadlines is not just a late reimbursement problem. If substantiation never happens, the accountable plan conditions fail and the payments turn into taxable wages. The same goes for excess amounts: any per diem paid above what the traveler actually substantiates has to be returned within a reasonable period, or it gets reclassified as income.

1
U.S. General Services Administration. GSA Per Diem Bulletin FTR 26-01
2
eCFR. 41 CFR Part 301-11 – Subsistence Expenses
3
U.S. General Services Administration. Frequently Asked Questions, Per Diem
4
U.S. General Services Administration. Per Diem Rates
5
Federal Register. Maximum Per Diem Reimbursement Rates for the Continental United States (CONUS)
6
eCFR. 26 CFR 1.62-2 – Reimbursements and Other Expense Allowance Arrangements
7
Internal Revenue Service. Rev. Proc. 2019-48
8
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
9
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
10
Internal Revenue Service. Per Diem Rates FAQ
11
Internal Revenue Service. Notice 2025-54 Special Per Diem Rates