Payroll Rules For Per Diems

11/3/2025

A “per diem allowance” is a flat rate, stated schedule, or other IRS-specified rate or schedule payment made under an accountable plan for lodging, meals, and incidental expenses for business travel away from home.

Under the federal per diem rate, employers may reimburse employees by travel days, miles, or some other fixed allowance.

In these cases, the employee is considered to have accounted to the employer if the payments do not exceed rates established by the Federal Government. The 2026 federal standard mileage rate for auto expenses is 70 cents per mile.

The government per diem rates for meals and lodging in the continental United States are listed in Pub. 1542, Per Diem Rates. Other than the amount of these expenses, employees' business expenses must be substantiated (for example, the business purpose of the travel or the number of business miles driven).

If the employer reimburses employees for business expenses under a per diem or mileage allowance that exceeds the amounts approved by the government, the excess amount must be reported as wages. The excess amount is subject to FIT, social security, Medicare, and FUTA taxes. The nontaxable portion, (the allowable government rates) are reported on the employee’s Form W-2 in Box 12 with the letter Code L. The taxable amount is included in Boxes 1, 3 and 5.

The federal per diem rate is equal to the sum of the federal lodging rate and the federal meal and incidental expenses (M & I E) for the locality of travel.

Incidental expenses include expenses for laundry, cleaning and pressing of clothing, fee and tips for waiters, baggage handlers, etc., taxicab fares, or telephone calls are not included. Locality of travel refers to the locality where an employee traveling away from home stops for sleep or rest. The listing of the localities within the continental United States (CONUS) are published annually by the IRS.

Per Diems must be consistently applied and in accordance with reasonable business practice. No substantiation other than the per diem amount is required if the federal guidelines are followed.

If the employer provides the lodging (in-kind, actual cost, or direct to provider), then a per diem for only the M&IE may be used.