IRS per diem rates 2026: the IRS per diem rules, substantiation and when per diem becomes taxable wages

The IRS per diem rates for 2026 come from Notice 2025-54 and cover travel from October 1, 2025 through September 30, 2026. Under the high-low substantiation method the rate is $319 a day in a high-cost locality and $225 everywhere else in the continental United States, with meal portions of $86 and $74. The standard CONUS rate is $110 for lodging plus $68 for meals and incidentals. Rates for travel on or after October 1, 2026 arrive in a new IRS notice, normally published in late September.

IRS per diem rules let an employer reimburse travel with a flat daily rate instead of collecting receipts for every meal and hotel night. Pay at or below the federal rate under an accountable plan and the money is not wages, so nothing goes on the W-2. The employee still has to substantiate the time, place and business purpose of each trip. Pay above the federal rate and the excess is wages, subject to withholding and employment taxes.

That is the entire trade. You give up nothing on deductibility and you stop chasing $14 airport sandwich receipts, but you take on a rate lookup, a substantiation habit and a handful of restrictions on who can use the method at all. The rules live in two documents: Revenue Procedure 2019-48, which sets the mechanics and has not been replaced, and an annual IRS notice that publishes the rates. For travel from October 1, 2025 through September 30, 2026 that notice is Notice 2025-54.

What are the IRS per diem rates for 2026?

There are two rate systems and you have to pick one. The first is the standard federal per diem, which is set city by city: GSA publishes CONUS rates, the Department of Defense sets rates for Alaska, Hawaii and the territories, and the State Department sets foreign rates. The second is the high-low substantiation method, which collapses the whole of the continental United States into two numbers and is far easier to run.

A detail worth pausing on: the standard CONUS rate of $110 plus $68 comes to $178 a day, while the high-low low rate is $225. If your people mostly travel to ordinary mid-sized cities, the high-low method reimburses them noticeably more than the location-specific standard rate would, at the cost of nothing but simplicity. That is not an accident. High-low is a blunt instrument by design, and the blunt number sits above the standard rate precisely so it stays defensible across a wide spread of destinations.

The high-cost list changes every year and it is seasonal. Notice 2025-54 lists Gulf Shores, Alabama as high-cost only from June 1 to July 31, Mammoth Lakes, California only from December 1 to March 31, and Palm Springs only from October 1 to April 30. San Francisco, San Diego and Monterey are high-cost the entire year. If you run the high-low method you have to check the date as well as the city, which is exactly the kind of lookup that belongs in software rather than in a spreadsheet someone updates each October.

What are the IRS rules for per diem?

Six rules cover almost every question a finance team actually has. All of them come from Rev. Proc. 2019-48.

The related-party rule catches more small companies than people expect, and it is the one that most often gets missed. Rev. Proc. 2019-48 says the per diem sections do not apply "if a payor and an employee are related within the meaning of section 267(b), but for this purpose the percentage of ownership interest referred to in section 267(b)(2) is 10 percent." So the owner of an S corp holding more than 10 percent of the stock cannot pay themselves a lodging per diem under this method. They can still be reimbursed, and the reimbursement can still be tax-free under an accountable plan, but it has to be based on actual substantiated lodging costs rather than a flat federal rate. That is a much lower threshold than the 50 percent test people are used to seeing in section 267, and it is easy to trip over in a closely held business.

Does per diem have to be reported on a W-2?

Not if you pay at or below the federal rate under an accountable plan and the employee substantiates time, place and business purpose. In that case the payment is excluded from income and wages entirely, and nothing appears on the W-2. It is only the excess over the federal rate, and any amount tied to travel days the employee never substantiated and was not required to return, that becomes wages subject to income tax withholding and employment taxes.

The mechanics of the split matter. If you pay $250 a day for travel to a locality where the federal rate is $225, the first $225 is tax-free and $25 a day is wages. You do not lose the treatment on the whole payment for going over. Where you do lose everything is on the substantiation side: if the arrangement itself fails one of the three accountable plan requirements, every dollar paid under it becomes wages, not just the excess. The rules on business connection, substantiation and returning excess advances are set out in Treasury Regulation 1.62-2 and the accountable plan safe harbors, and per diem sits on top of that framework rather than replacing it.

What are the IRS guidelines for per diem substantiation?

Three elements, per day of travel, and the amount is not one of them. Rev. Proc. 2019-48 says an employee satisfies the adequate accounting requirements if they use the revenue procedure to substantiate the amount and, "within a reasonable period of time," also substantiate "the elements of time, place, and business purpose of the travel."

In practice that means a record showing the dates of travel, the destination city, and why the trip happened. A calendar entry naming the client, a booking confirmation and a one-line purpose on the expense report will normally cover it. What it does not mean is that you can stop keeping records. The most common failure we see is a company that adopts per diem, correctly stops collecting meal receipts, and then also stops recording business purpose, which is the one element per diem never substituted for in the first place.

How do you handle partial days of travel?

Rev. Proc. 2019-48 gives two methods and lets you choose. The first is the Federal Travel Regulations method, which allocates three-quarters of the applicable M&IE rate to each partial day of travel. The second is "any method that is consistently applied and is consistent with reasonable business practice."

The revenue procedure includes its own worked example of the second option, and it is more generous than people assume. For an employee traveling from 9 a.m. one day to 5 p.m. the next, the IRS states that a proration method producing two times the federal M&IE rate is consistent with reasonable business practice, "even though the Federal Travel Regulations allow only one and a half times the federal M&IE rate." The word doing the work in that rule is "consistently." Pick one method, write it into your policy, and apply it to everyone. Switching between the three-quarters rule and full days depending on who is asking is what turns a defensible policy into an audit conversation.

Can you use the high-low method for some trips and not others?

Not within CONUS, and this catches people out. Rev. Proc. 2019-48 section 5.03 says a payor using the high-low method for an employee "must use that method for all amounts paid to that employee for travel away from home within CONUS during the calendar year." You cannot run high-low for the easy trips and location-specific rates for the expensive ones, picking whichever is higher each time.

Two flexibilities do exist. The consistency requirement is per employee, not company-wide, so different employees can be on different methods. And it only binds CONUS travel: for trips outside the continental United States you may use any permissible method, including actual expenses. There is also a transition rule for the last three months of a calendar year, since the rates change on October 1 but the consistency rule runs on the calendar year. For October through December you must keep using the same method you used for the first nine months, but you may choose either the old rates or the new ones.

What counts as an incidental expense?

Less than most people think. Rev. Proc. 2019-48 ties the definition to the Federal Travel Regulations at 41 C.F.R. 300-3.1, and lists it as "fees and tips given to porters, baggage carriers, bellhops, hotel staff, and staff on ships." That is the whole category.

Tips to porters and hotel staff are incidentals. Laundry, dry cleaning, taxis, parking, checked bag fees, in-room internet and business phone calls are not, which means they are not covered by an M&IE per diem and have to be reimbursed separately on actual cost. If your travel policy tells people the per diem covers "meals and everything small," it is describing a broader category than the regulation does, and the gap shows up as employees quietly out of pocket on laundry during long trips.

What are the per diem rules for long-term travel?

The per diem method only applies to travel "away from home," and that phrase carries a specific meaning that long assignments can break. A stay at a single work location that is realistically expected to last, and does last, more than one year is treated as indefinite rather than temporary, which moves the employee's tax home to the new location. Once that happens there is no travel away from home to reimburse, and per diem paid for it is compensation.

The practical rule for finance teams is to look at expectation, not just outcome. If an assignment is expected from the outset to run beyond a year, it is indefinite from day one, even if it ends up being cut short. If it was genuinely expected to last under a year and then gets extended, the treatment changes from the point the expectation changes rather than retroactively. Long-term assignments are where per diem stops being a simplification and starts needing real advice, so get a position from your tax adviser and document when the expectation changed and why.

Does the 50 percent meal limit still apply to per diem?

Yes, on the employer's deduction, and this is why the annual notice bothers to split out a meals portion of each high-low rate. Section 274(n) limits the deduction for meals, and per diem does not switch that limit off. The notice states that the amount of the $319 high rate and $225 low rate "treated as paid for meals for purposes of section 274(n)" is $86 and $74 respectively.

So a full high-cost day at $319 breaks down as $86 of meals subject to the section 274(n) limit and $233 of lodging and incidentals that is not. That split does nothing to the employee, whose reimbursement is tax-free either way, but it is the difference between a correct and an overstated deduction on the company return. It also has to survive into your general ledger coding, which is the part that tends to go wrong when per diem lands as a single lump-sum line. Coding the meals portion separately at the point the expense is captured is much less painful than reconstructing it at year end, and if you are already preparing the return it is worth confirming how your filing software treats the meals portion before you rely on the total.

Is per diem better than reimbursing actual expenses?

It depends on how much travel you process and how much you value predictability over accuracy. Here is the honest comparison.

The usual right answer for a mid-sized US company is a hybrid: per diem for M&IE, where receipt collection costs more than it saves and the amounts are small, and actual expense reimbursement for lodging, where the amounts are large, the receipt already exists as a folio, and paying a flat $110 in a city where the hotel cost $260 makes the traveler pay for the trip. That combination is explicitly available, since Rev. Proc. 2019-48 provides an M&IE-only method for exactly this pattern.

How to run per diem without it becoming a monthly project

The mechanics are simple and the bookkeeping is not, which is where most of the cost hides. Four things have to happen every time and none of them are interesting.

• The correct rate has to be found for the destination and the travel dates, from a list that changes annually and seasonally.
• Partial days have to be prorated by whichever method your policy names, consistently, every time.
• The meals portion has to be split out and coded separately so the section 274(n) limit lands correctly on the return.
• Anything paid above the federal rate has to be identified and routed to payroll as wages, in the period it was paid.

Software should be doing all four. Expense reimbursement software that reads the trip, applies your policy as the expense lands and codes it to the right GL account removes the manual lookup and the manual split, which are the two places errors actually enter. Expenditure checks each transaction against your expense policy at the moment it arrives, codes it to your own chart of accounts, and gives finance a live view of travel spend across the cards and banks you already use. It never moves or holds your money, and what it produces is insight and clean coding, not tax advice.

What this means for your policy

Write down four decisions and most per diem questions stop coming to you. Name the method, high-low or location-specific, and note that it is fixed for the calendar year within CONUS. Name the proration method for partial days and apply it to everyone. State that per diem covers meals and incidentals as the regulation defines them, and list separately what gets reimbursed on actual cost, so nobody is surprised by a laundry bill. And state plainly that owners above 10 percent are reimbursed on actual lodging costs rather than a rate, because that one is invisible until an examiner finds it.

Everything on this page comes from Rev. Proc. 2019-48, IRS Notice 2025-54 and the GSA FY 2026 rate tables, read on August 16, 2026. Rates change every October 1 and the high-cost list changes with them, so check the current notice before you set next year's policy. This is general information about how the rules work, not tax advice for your situation, and long-term assignments in particular are worth a conversation with your own adviser.