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+1-802-778-9005Per diem is a fixed daily allowance for employees to cover expenses during business travel. It includes lodging, meals, and incidental costs.
Per diem is a Latin word that means per day or for each day.
It simplifies expense management by avoiding the need for detailed expense tracking and reimbursement.
Per diem can be broken down into two key uses:
It sounds simple, but the government has set rules about how such an income is reported and taxed.
The U.S. General Services Administration (GSA) sets standard per diem rates annually, which vary by location to account for differences in living costs.
When your employees travel for work, per diem simplifies the process of reimbursing them for their business trip expenses.
The General Service Administration divides it into two main parts: meals and incidental expenses (M&IE) and lodging.
M&IE covers expenses related to eating and minor day-to-day costs. It includes:
The GSA sets different per diem rates for cities based on their size and the business travel volume they receive.
Big cities, like San Francisco and Boston, have the highest daily M&IE allowance of approximately $92. Meanwhile, smaller but still busy cities like Tampa and Cleveland offer rates around $80.
Lodging expenses cover your employee’s stay, which could be at hotels, motels, or resorts.
The lodging per diem is separate from M&IE, with rates varying by location.
For example, Boston’s lodging per diem for 2024 is set at $349, while M&IE is $92. In New York City, lodging rates can range from $165 to $342, with M&IE maxing at $79.
The per diem method is a nuanced approach to reimburse employees fairly to reflect the actual expenses incurred in the travel.
Per diem is an alternative to reimbursing an employee’s expense during business travel. The employer offers a predetermined allowance instead of reimbursing the employee with the exact amount.
The per diem allowance varies for different states, reflecting the cost of living in these areas. It can be paid in advance or reimbursed after the trip.
Employees may still be asked to submit an expense report despite the fact that it is a fixed daily rate. However, these reports are generally less detailed and should include information like the date and time of travel, location, total expense, and purpose of the visit.
The General Services Administration (GSA) sets per diem rates for federal employees on official travel each fiscal year. These rates are a benchmark for employers to guide their per diem policies.
The per diem rates are updated annually on October 1 to account for changes in costs due to factors like inflation and seasonal demand.
The new standard rates apply to over 2,600 United States counties and 302 high-cost areas that receive specific rates every year.
As of 2025, the standard lodging rate has been updated to $110 per day, with meals and incidental expenses (M&IE) ranging between $68 and $92. The GSA’s official website provides specific details and rates for different locations.
The IRS offers per diem rates for self-employed individuals that you can use only for meal expenses on a business trip. The meal expenses are not taxable income if they do not exceed federal per diem rates.
However, you need all the travel details handy, like the date and time of travel, location, purpose, etc. Also, keep your bills in case you need them for tax purposes.
For lodging and other travel expenses, you must directly deduct the related costs on your tax returns, typically on Schedule C.
Companies pay per diem for several key reasons:
The IRS has announced the per diem rates for the 2024 fiscal year on October 1, 2023.
The standard lodging rate has moved up from $107 to $110. As usual, lodging rates are higher in areas outside the CONUS than in other areas. For M&IE, the different tier cities will remain in the $68 to $92 range. However, the standard M&IE has moved up from $59 to $62.
When companies manage per diem payments, it is usually through the 3 most common ways:
The payment methods differ based on organizational policies and employee needs.
The fixed-rate method involves companies allocating a standardized daily allowance to employees to cover accommodation, meals, and incidental expenses.
This rate is generally predetermined and factors in the cost of living in the travel destination and IRS guidelines. It is a simple process, and employees enjoy complete autonomy in managing travel expenses.
Employees who use personal cars for business travel can also be reimbursed according to mileage. The IRS recently updated the standard mileage rates for 2024.
The rate for business use is now 67 cents per mile, an increase of 1.5 cents from 2023. Starting January 1, 2024, employers can use this rate to calculate the deductible costs when an employee uses his vehicle for business.
Partial payments are much more flexible. For this payment method, companies can reimburse only certain costs, such as meals, while leaving other expenses, like lodging or transportation, to be managed by the employees.
Most employers use this payment method for shorter trips or where a full per diem allowance is not required.
Out-of-pocket expenses mean the employees pay for all costs incurred during the business trip, and the employer reimburses them against claims.
But in this case, employees need to provide bills for the claims, which may demand more administrative effort from both the employer and employee.
There are two ways to calculate per diem: federal rates and the high-low method.
Most counties in the CONUS (continental United States) operate under a standardized per diem rate, consisting of two components: the maximum lodging allowance and the meals and incidental expenses component.
As of 2025, the standard per diem rate is $178, which includes $110 for lodging and $68 for meals and incidental expenses. However, on the first and last days of their travel, employees receive only 75% of the standard rate for meals and incidental expenses.
Say an employee travels to Boston for business.
The per diem rate for meals and incidental expenses (M&IE) in Oxford, Mississippi, is $68 daily. The breakdown includes $11 for breakfast, $22 for lunch, $35 for dinner.
On the first and last days of travel, the employee gets only 75% of the standard rate for M&IE, which is $51.
The daily standard lodging rate for Oxford is $110.
Now, if the employee stays in Oxford for 3 days, the per diem reimbursement will be calculated as follows:
Lodging: $110 x 3 = $330
Meals and Incidental Expenses:
The employee receives the full M&IE rate of $68 per day for the one day between travel days. On the first and last days, he receives 75% of the standard rate, which is $51.
So, the total reimbursement for M&IE for the trip would be
Full days: $68 x 1 day = $68
Partial days: $51 x 2 days = $102
Total M&IE reimbursement: $68 + $102 = $170
Total per diem = M&IE + lodging = $170 + $330= $500
So, the total reimbursement under standard rates will be $500.
The high-low per diem method is used when the rate is higher in some cities than in others. For example, Boston, Massachusetts, has a per diem rate of $197 per day, with an additional $92 for M&IE.
In other cities within the Continental United States (CONUS), the rate is $214 per day, including $68 for meals.
So, if you need to calculate per diem for higher-cost cities outside CONUS, use the highest rate, and if the destination is not to a high-cost area, calculate using the lowest for CONUS cities.
When calculating per diem, companies should consider the following factors:
Key rules for employer compliance with per diem payments include:
Per diem payments have many other benefits for employers and employees, including significantly simplifying travel expense budgeting.
Here are tips for managing per diem expenses effectively:
Per diem is a good way for employees and employers to manage business travel expenses. However, it’s also necessary to follow the GSA rules and ensure equitable expense coverage for employees.
Also, employers need to update their annual per diem guidelines based on updated information from the IRS.
Companies use per diem payments to simplify expense management and ensure compliance with tax regulations. These payments are for business-related travel expenses and can be tax-exempt if they adhere to IRS guidelines.
Yes, per diem payments have to be reported to the IRS. It will be treated as taxable income if it exceeds federal per diem rates or isn’t adequately accounted for.
Per diem is typically paid for days an employee is working or traveling for work purposes. Whether it’s paid on weekends depends on whether those days are considered work or travel days. You should consider your company policies to confirm if they are covered.
Per diem payments are not taxable as long as they don’t exceed the federal daily rates set by the GSA and are used for business travel expenses. Payments exceeding these rates or not used for qualified expenses may be taxable.
Employers can deduct per diem payments as business expenses when they are for work-related travel, and the payments are in line with federal guidelines.