What Does Per Diem Mean? Per Diem Rates Explained

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A per diem is a fixed daily allowance an employer pays to cover an employee’s costs while traveling for business. The phrase is Latin for “by the day.” The allowance usually covers lodging, meals and incidental expenses such as tips and service fees. Instead of totaling every receipt, the employer pays a set amount for each day of travel.

In employment, the term also describes paying a worker for each day worked instead of a regular salary.

How a Per Diem Works

What the Allowance Covers

A travel per diem usually has two parts:

• Lodging: the nightly cost of a hotel or similar accommodation, excluding taxes in the federal system.
• Meals and incidental expenses (M&IE): breakfast, lunch, dinner and small costs related to the trip.

Incidental expenses are minor costs that are hard to itemize, such as tips to porters, baggage handlers and hotel staff. Some employers also include laundry, internet access or room service; others reimburse those separately. The employer’s written travel policy decides what counts.

A per diem does not normally cover airfare, rental cars or mileage. Those are reimbursed separately, usually at actual cost or, for a personal vehicle, at the IRS standard mileage rate. For 2026 that rate is 72.5 cents per mile, up 2.5 cents from 2025.

How Employers Structure It

The common approaches are:

• Fixed daily rate: The employee receives a set amount per day and covers costs from it.
• Partial per diem: The allowance covers only part of the trip, most often meals. Lodging is booked by the company or reimbursed at cost.
• Full or capped expense coverage: The company pays actual costs, sometimes with a ceiling for each category.
• Company credit card: The employee charges business expenses directly to a corporate card and does not pay out of pocket.
• Out-of-pocket reimbursement: The employee pays first, submits a claim with receipts, and is repaid once the claim is approved.

These methods can be combined. A company might book hotels centrally, issue a card for transport and pay a flat M&IE per diem for food. Out-of-pocket reimbursement takes the most administrative time, because each claim and receipt must be reviewed and approved. That workload is the main reason employers adopt flat daily rates.

Federal Per Diem Rates

The GSA publishes per diem rates for federal employees traveling within the continental United States. Rates for Alaska, Hawaii, U.S. territories and foreign locations are set by other federal agencies. New rates take effect each year on October 1, the start of the federal fiscal year.

The rates follow local costs. A standard rate applies to roughly 2,600 counties. About 300 nonstandard areas, mostly cities and resort locations where hotels and meals cost more, have their own higher rates. Some nonstandard areas also have seasonal lodging rates.

For FY 2026, the standard lodging rate is $110 per night, unchanged from FY 2025. The standard M&IE rate is $68 per day, also unchanged. In nonstandard areas, M&IE is assigned in tiers that range from $68 to $92 per day.

Many private employers adopt the GSA rates directly or set their own rates relative to them, largely because of the tax treatment described below.

Partial Days

For federal travelers, M&IE on the first and last day of a trip is paid at 75% of the full daily rate. Lodging is paid per night, so a three-day trip with two overnight stays earns two nights of lodging. Private employers may use the same convention or their own method, such as prorating by hours away. Job ads or policies that mention a per diem “after 12 hours” usually mean the allowance starts only once travel exceeds that duration.

How Per Diem Is Taxed

U.S. tax treatment depends on two questions: whether the employer’s arrangement is an accountable plan, and whether the amount paid exceeds the federal rate for the location.

An accountable plan requires a business connection for the expense, timely substantiation by the employee and return of any amounts not substantiated. To receive tax-free per diem, the employee also has to be traveling away from their tax home, generally overnight.

At or Below the Federal Rate

If the per diem is equal to or less than the federal rate and the plan rules are met, the payment is not treated as wages. It is not subject to income tax withholding or payroll taxes.

The employee still has to substantiate the trip, typically within 60 days of returning. The report should show:

• The business purpose of the travel
• The dates, places and amounts involved
• Receipts for lodging
• Receipts for other out-of-pocket expenses

Meal and incidental receipts are generally not required when M&IE is paid as a per diem, because the rate itself stands in for the actual amount. On Form W-2, the nontaxable per diem amount up to the federal rate is reported in Box 12 with code L, separate from taxable wages.

If the employee does not file the required expense report on time, the whole allowance can become taxable, not just the excess.

Above the Federal Rate

When an employer pays more than the federal rate, the portion above it is treated as wages unless the employee returns it. That excess is included in taxable pay on the W-2 and is subject to withholding and payroll taxes.

This is why many companies set their per diem at the GSA rate. Paying more creates a taxable item for the employee and extra payroll reporting for the employer.

Worked Example

Hypothetical example for illustration only. The rates are not GSA figures for any real location.

An employee travels to a city where the federal rate is assumed to be $150 per night for lodging and $64 per day for M&IE. The trip runs three days: leave Monday morning, return Wednesday evening, with two hotel nights. Assume the employer follows the federal 75% convention for travel days.

Federal-rate allowance:

If the employer pays exactly $460 and the employee substantiates the trip on time, none of it is taxable.

Now assume the employer instead pays a flat $80 per day for M&IE, or $240 for the trip, and reimburses the hotel at cost. The federal M&IE amount for the same trip is $160. The $80 difference is excess. If the employee keeps it, the $80 is added to taxable wages. If the employee returns it, the full payment stays nontaxable.

Under a per diem, the employee keeps any savings from eating cheaply and absorbs any overspending. If actual meals cost $130, the employee still receives the full $160, and the $30 difference is not taxable because the allowance did not exceed the federal rate.

Per Diem for Self-Employed People

Self-employed individuals do not pay themselves a per diem in the employee sense. They can, however, use the federal M&IE rate to calculate the meal portion of travel costs for a tax deduction instead of tracking actual meal spending. Lodging must be deducted at the actual amount paid, with records.

The usual deduction limits for business meals still apply to the amount calculated this way. Self-employed travelers also need records showing the dates, locations and business purpose of each trip.

Per Diem as a Pay Structure

In hiring, “per diem” describes how a worker is paid, not a travel allowance. A per diem worker is paid for each day or shift worked, usually without a guaranteed schedule and often on a temporary or short-term basis. Hospitals use per diem nurses to fill staffing gaps, and school districts call on per diem substitute teachers when regular teachers are absent.

For employers, this avoids adding occasional workers to the regular salaried payroll. For workers, it usually means flexibility and sometimes a higher daily rate. Benefits and hours can be limited or absent, though this varies by employer.

Travel nursing combines both meanings. A travel nurse may earn wages and also receive a tax-free per diem for housing and meals while working away from their tax home, subject to the same accountable plan and tax home rules described above.

Per Diem vs. Related Terms

• Per diem vs. expense reimbursement: A per diem is a fixed amount per day regardless of actual spending. Reimbursement repays what was actually spent, based on receipts.
• Per diem vs. stipend: A stipend is a fixed payment, often monthly, for a broad purpose such as a remote work allowance or living costs. It is usually taxable unless it meets specific rules. A travel per diem is tied to specific business trips.
• Per diem vs. salary: Salary pays a set amount per period. Per diem pay compensates each day worked.

The phrase also appears wherever an amount accrues by the day, such as daily interest on a loan payoff, daily fees when shipping equipment is held past an agreed time, and daily rates paid to some board members or consultants.

Limitations

A flat per diem trades accuracy for simplicity. In a city where actual costs exceed the rate, the employee absorbs the difference. In a cheap location, the employer pays more than the trip actually cost. GSA rates are set once a year, so they can lag rising hotel prices during busy seasons or after a period of high inflation.

A trip that crosses rate areas needs a rule for which rate applies. For federal M&IE, that generally depends on where the traveler stays overnight. A private employer is not required to pay a per diem at all, or to pay the federal rate.

FAQs

The Bottom Line

Employees who travel for work, the employers who pay them and self-employed travelers all need to understand per diem rules. Keeping the allowance at or below the federal rate and filing expense reports on time keeps the payment tax free, while any excess the employee keeps becomes taxable wages. Self-employed people can use the federal M&IE rate for meals but must deduct lodging at the actual amount paid.