IRS Publication 1542 Per Diem Rates: Methods and Meal Limits

IRS Publication 1542 lets an employer reimburse business travel with a flat daily allowance instead of collecting every hotel bill and meal receipt. Pay at or below the federal per diem rate under a qualifying accountable plan and the payment is tax-free to the employee; pay above it and the excess becomes taxable wages. For travel between October 1, 2025 and September 30, 2026, the IRS high-low rates are $319 per day for designated high-cost localities and $225 per day everywhere else in the continental United States, with meal portions of $86 and $74.¹

When Per Diem Actually Applies

Per diem only works when an employee is traveling away from their tax home, which the IRS defines as the regular place of business, not necessarily where the family lives. Two conditions have to hold: the work keeps the employee away substantially longer than a normal workday, and the trip requires sleep or rest. A long day-trip by car does not qualify. Workers with no fixed workplace and no regular residence are considered itinerant and cannot use per diem at all.²

The Two Methods You Can Choose From

Standard Federal Rates (GSA Tables)

The default method uses geographically specific rates set by the General Services Administration. There is a standard CONUS rate for most locations, plus roughly 300 non-standard areas with higher rates tied to local costs.³ For fiscal year 2026, the GSA held rates level with FY 2025 for travel on or after October 1, 2025.⁴

Every GSA rate has two pieces: a lodging cap and a separate meals-and-incidental-expenses (M&IE) figure. You can reimburse the combined amount and skip lodging receipts entirely, or reimburse only M&IE and require actual hotel receipts. The second approach keeps a lid on hotel costs while still eliminating meal paperwork. To apply the standard method, look up the county or city where the employee spent each night; three overnight stops in three cities means three rate lookups. Travel outside the continental U.S. uses rates from the Defense Travel Management Office and the State Department instead of the GSA.⁵

The High-Low Method

The high-low method exists to spare you the destination-by-destination lookup. It collapses every CONUS location into two rates: $319 for high-cost cities and $225 for everywhere else, effective October 1, 2025 through September 30, 2026.¹

The IRS publishes the full list of high-cost localities in each annual notice. Some cities are on the list year-round (San Francisco, Washington D.C., Key West), while others qualify only in peak season. Miami is high-cost only from December through May; Phoenix only in February and March.¹

Two rules matter if you go this route. First, consistency: once you pick the high-low method for a given employee, you must stick with it for all of that employee’s CONUS travel through the rest of the calendar year. You can use different methods for different employees, and any method for travel outside CONUS. Second, the October 1 transition: because rates change every October 1 but the tax year runs on the calendar, you can either keep using the earlier rates through December or switch to the new ones on October 1. Whichever you pick has to apply to every employee under the high-low method.⁶

What the M&IE Rate Covers

M&IE covers meals, tips to servers and hotel staff, laundry, and small miscellaneous travel costs. Incidentals are $5 per day at every tier. The GSA breaks each tier into per-meal amounts, which becomes relevant when a conference or client provides a meal: reduce the day’s M&IE by the allocation for that meal at the applicable tier rather than paying the full amount.⁷

Partial Travel Days

Departure day and return day are partial travel days and get a reduced M&IE. The standard rule under Revenue Procedure 2019-48 pays 75% of the full M&IE rate on each of those days. At a $74 M&IE rate, that is $55.50 out, $74 for each full day in between, and $55.50 back. An employer may adopt a different proration method if applied consistently and reasonably, but most stick with the 75% rule. Paying full M&IE on travel days creates an overpayment, and the excess turns into taxable income to the employee.⁶

The 50% Meal Deduction Limit

Per diem simplifies documentation but does not raise the deduction ceiling on meals. The meal portion of any per diem is capped at a 50% deduction on the employer’s return. Pay $74 in M&IE for a low-cost city and only $37 is deductible; the other $37 is a non-deductible business cost.⁸

There is one important carve-out. Workers subject to Department of Transportation hours-of-service rules, including long-haul truck drivers, pilots, and certain railroad employees, get an 80% deduction on meals instead of 50%.⁸

The Accountable Plan Is What Makes It Tax-Free

Everything above depends on the employer running a qualifying accountable plan under Treasury Regulation 1.62-2. Get it right and per diem at or below the federal rate is tax-free to the employee. Get it wrong and every dollar becomes taxable wages, including the portion that would otherwise have been within the federal rate. There is no partial credit.

Three conditions have to be met:

Business connection. The expenses have to relate to the employee’s work. A trip that is primarily personal does not qualify.
Substantiation. The employee documents the business purpose, dates, and locations of travel within a reasonable time. Individual meal receipts are not required because the per diem rate itself satisfies the amount element.
Return of excess. Any amount paid above what the employee can substantiate is returned to the employer within a reasonable time.

The IRS generally treats 120 days as a reasonable deadline for returning excess amounts.⁹⁶ A plan that regularly overpays without tracking or recovering the excess, or that skips the substantiation step, can be reclassified by the IRS as non-accountable. When that happens, the whole arrangement gets swept into wages.

When You Pay More Than the Federal Rate

Employers can pay above the federal rate, and many do in expensive cities where the GSA lodging cap does not cover a real hotel room. The excess is treated as taxable wages: reported on the W-2, subject to income tax withholding, Social Security, and Medicare. Pay $275 where the federal rate is $225 and the extra $50 per day is wages.¹⁰

For independent contractors, the mechanics are different. If a contractor receives per diem but does not document the time, place, and business purpose, the payment goes on Form 1099-NEC as compensation. The contractor then deducts actual travel expenses on their own return, subject to the same substantiation rules and the 50% meal cap.

Owners and Self-Employed Individuals Have a Lodging Restriction

Revenue Procedure 2019-48 blocks the use of per diem for lodging when the employee and employer are related parties with an ownership interest of 10% or more. A business owner who owns at least 10% of the company has to submit actual hotel receipts.⁶ The restriction is lodging-only; owners can still use per diem for meals and incidentals. Self-employed individuals are in the same position: a sole proprietor or single-member LLC owner can use the M&IE rate on Schedule C but must document actual lodging with receipts. Business purpose, dates, and destinations still have to be recorded for every trip.¹⁰

Where to Find the Current Rates

Publication 1542 itself incorporates the GSA’s standard federal tables as they are updated.¹¹ The GSA lookup lets you search by city or zip code for both the lodging cap and M&IE tier at any CONUS destination.³ For the high-low rates and the current roster of high-cost cities, check the most recent IRS notice, currently Notice 2025-54.¹ Foreign rates come from the State Department, and non-foreign areas outside CONUS such as Alaska, Hawaii, and U.S. territories come from the Defense Travel Management Office.⁵ New rates typically take effect October 1, with occasional mid-year corrections. Verifying the current notice before you cut a reimbursement is the simplest way to keep a tax-free payment from turning into taxable wages.

1
Internal Revenue Service. 2025-2026 Special Per Diem Rates
2
Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses
3
General Services Administration. Per Diem Rates
4
U.S. General Services Administration. GSA Per Diem Bulletin FTR 26-01
5
Defense Travel Management Office. Per Diem
6
Internal Revenue Service. Rev. Proc. 2019-48
7
General Services Administration. M&IE Breakdowns
8
Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses
9
Internal Revenue Service. Nonresident Aliens and the Accountable Plan Rules
10
Internal Revenue Service. Per Diem Payments Frequently Asked Questions
11
Internal Revenue Service. Publication 1542 – Per Diem Rates