Per diem is a fixed daily allowance an employer pays an employee to cover lodging, meals, and incidental costs during business travel, replacing itemized expense reimbursement with a set rate tied to federal guidelines. Used correctly, it simplifies both bookkeeping and taxes for everyone involved.
How the Government Sets the Rates
The General Services Administration publishes per diem rates for travel inside the continental United States. Once a trip crosses into Alaska, Hawaii, or a U.S. territory, the Department of Defense takes over rate setting, and international travel falls under the State Department's numbers. Plenty of private employers simply borrow the GSA figures rather than building their own reimbursement schedule from scratch, since the rates already reflect real regional cost differences.
Per diem covers two separate buckets of spending: meals and incidental expenses, often shortened to M&IE, and lodging. Incidentals are the small stuff, tips for porters, baggage handlers, hotel staff, or crew on a ship, not big ticket items.
What the 2026 Meal and Incidental Rates Look Like
For 2026, the continental United States is divided into five pricing tiers, with the most expensive cities such as New York landing in the top bracket. Each tier breaks down into breakfast, lunch, dinner, and a flat incidental allowance.
| Tier | Breakfast | Lunch | Dinner | Incidentals | Total |
|---|---|---|---|---|---|
| 1 | $16 | $19 | $28 | $5 | $68 |
| 2 | $18 | $20 | $31 | $5 | $74 |
| 3 | $20 | $22 | $33 | $5 | $80 |
| 4 | $22 | $23 | $36 | $5 | $86 |
| 5 | $23 | $26 | $38 | $5 | $92 |
Those figures apply to travel within the lower 48 states. Lodging rates are calculated separately and vary by both location and month, since the GSA weighs three main inputs: the average daily rate of short term rentals in the area (factoring in geography, fire safety certification, and property type), a trailing twelve month window of rate data running from April through March, and three years of seasonal pricing history to smooth out spikes tied to conventions, holidays, or tourist season.
One wrinkle catches many travelers off guard. On the first and last day of a trip, employees only qualify for 75 percent of the full M&IE rate that applies to the temporary work location, not the employee's home duty station. A trip to a Tier 5 city, in other words, does not pay full freight on the bookend travel days.
Looking Up Rates for a Specific City
Anyone who wants exact numbers for a particular destination can use the GSA's online per diem lookup tool by entering a state along with either a city name or zip code. The tool returns month by month lodging rates for that location along with the applicable M&IE breakdown, so travelers and finance teams do not have to guess which tier a city falls into.
Tax Treatment for Employees and Employers
The IRS treats properly documented per diem payments as a reimbursement of business expenses rather than taxable wages, which means the money is not taxed on the employee's end. For that tax free treatment to hold, three conditions have to be met. The employee has to file an expense report. That report needs to spell out the date, time, location, dollar amount, and business purpose of the travel. And the per diem paid cannot exceed the federal standard rate for that location.
There is a limit worth flagging: if someone expects to be stationed at a particular work location for longer than a year, the IRS no longer treats that as deductible travel. Anyone facing an extended assignment should talk to a tax professional before assuming per diem rules still apply.
Weighing the Benefits Against the Drawbacks
Per diem systems trade precision for simplicity, and that trade off cuts both ways depending on whether you are running payroll or filing an expense report.
- Predictable budgeting: Employers pay a flat, known amount instead of reconciling every meal receipt and hotel folio after the fact.
- Lighter paperwork: Employees still need to track their trips, but they are not required to save and submit every individual receipt.
- Cleaner tax filing: Deducting a standard per diem amount from business income is far less labor intensive than auditing a stack of itemized expenses.
- Gaps in coverage: Not every travel cost fits neatly under per diem, so employees can end up paying certain expenses out of pocket.
- Mismatch risk: Because actual spending varies trip to trip, a flat rate can leave an employer overpaying in cheap markets or underpaying in expensive ones.
- Compliance exposure: Employers have to keep their per diem policies aligned with federal limits, since paying above the standard rate can create tax complications and, in some cases, legal risk.
What Employers and Travelers Should Confirm Before the Next Trip
The mechanics of per diem are straightforward once the rate tables are in hand, but the details that trip people up tend to be procedural: filing the expense report on time, keeping the per diem amount under the federal cap, and remembering the 75 percent rule on travel days. Anyone setting a company travel policy should check the GSA's lookup tool before each trip rather than relying on last year's numbers, since lodging rates shift monthly and the tiers themselves can change from one year to the next. For longer term assignments that might stretch past twelve months, a conversation with a tax advisor early on can prevent an unpleasant surprise at filing time.