IRS Publication 1542: Per Diem Rates, Methods, and Tax Rules

IRS Publication 1542 is the historical name for the guidance covering per diem allowances that let employers and self-employed travelers use flat daily rates instead of tracking every hotel bill and meal receipt. For the period running October 1, 2025 through September 30, 2026, the simplified high-low per diem rates are $319 per day in high-cost cities within the continental United States and $225 per day everywhere else in the continental U.S.¹ These figures are unchanged from the prior year.

What the Daily Rate Actually Covers

Each daily rate is really two allowances bundled together: one for lodging and one for meals and incidental expenses (M&IE). Under the high-low method for 2025-2026, the $319 high-cost rate breaks down into $233 for lodging and $86 for M&IE, and the $225 rate breaks down into $151 for lodging and $74 for M&IE.¹

The M&IE portion covers food, non-alcoholic beverages, tips for meal service, and a narrow set of incidentals: tips and fees paid to porters, baggage carriers, bellhops, and hotel housekeeping staff.² Laundry, dry cleaning, phone calls, and cab fare between your hotel and a restaurant are not incidental expenses under this definition, even though most travelers would call them incidental in ordinary speech.

The lodging allowance is where a lot of people get tripped up. Employers can use the flat lodging figure to reimburse employees tax-free without collecting hotel receipts, but self-employed taxpayers cannot use per diem for lodging at all. They must document actual lodging costs with real receipts.³

If you incur no meal costs on a travel day but still pay incidentals, there’s a separate $5 per day incidental-expenses-only rate. It applies to both CONUS and international travel.¹

The High-Low Method Versus City-by-City Rates

There are two ways to apply per diem to business travel within the continental U.S. The first is the General Services Administration’s city-by-city rates, which set specific figures for hundreds of localities. For fiscal year 2026, GSA M&IE tiers range from the standard $68 up to $79 in more expensive areas, with the $68 rate applying to any destination not specifically listed as a non-standard area.⁴

The second option is the high-low method, which collapses every CONUS destination into just two buckets. The IRS publishes an annual list of high-cost localities alongside the rates. Cities like San Francisco, New York, Washington D.C., and Boston appear year-round, while resort areas rotate on and off based on the season. Gulf Shores, Alabama qualifies only during June and July; Phoenix and Scottsdale qualify only in February and March.¹ The same city can flip between rates depending on when you travel there.

Employers pick one method and stick with it. Once you start using the high-low method for any employee during a calendar year, you must use it for every per diem reimbursement through December 31 of that year, and you can’t switch mid-year.³

Making Per Diem Payments Tax-Free

The federal rate functions as a ceiling. Reimbursements at or below the rate stay off the employee’s W-2 entirely, but only if the payment sits inside what the IRS calls an accountable plan.⁵

An accountable plan requires three things from the employee: report the date and location of the travel, state the business purpose, and return any unspent excess within a reasonable time. The IRS treats 60 days as a reasonable deadline for filing the expense report. If you’re using the meals-only per diem, the employee still needs to hand in lodging receipts.⁵

When any of those pieces is missing, the whole per diem payment becomes taxable wages. Income tax withholding, Social Security, and Medicare taxes all apply, and the employer owes employment taxes on it.⁶ This is where small businesses stumble most often: paying a flat travel stipend and calling it per diem doesn’t shield it from tax if there’s no expense report behind it.

Paying Above or Below the Federal Rate

If you reimburse an employee more than the applicable federal rate, only the excess is taxable. The portion up to the federal rate remains substantiated and tax-free, and the overage goes on the W-2 as wages.⁵ If the allowance is at or below the federal rate, employees don’t have to return unspent portions.

How Self-Employed Travelers Use the Rates

Self-employed taxpayers can use the federal M&IE per diem to cover meals and incidentals without keeping restaurant receipts, but not for lodging. Every hotel stay, short-term rental, and other accommodation cost needs a real receipt.³

The M&IE figure you claim then gets cut in half. Under IRC Section 274(n), the standard business meal deduction is 50%.⁷ Claim the $74 low-cost M&IE rate for a travel day and only $37 actually reduces the taxable income reported on Schedule C or Schedule F. Forgetting to apply the 50% haircut is a common self-employment return error.

Higher Rates and Bigger Deduction for Transportation Workers

If you’re subject to Department of Transportation hours-of-service rules, the numbers work differently. This covers long-haul truck drivers, certain railroad employees, airline crew, and merchant mariners.

The M&IE rate is a flat $80 per day for CONUS travel and $86 per day for travel outside the continental U.S. for the 2025-2026 period, regardless of city.¹ And these workers get to deduct 80% of meal expenses instead of the standard 50%.⁷ On the $80 rate, that’s $64 deductible per travel day rather than $40. Over a full year on the road, the difference runs into the thousands.

Departure and Return Days

You don’t get a full M&IE allowance on the days you leave and come back. The simplest method the IRS accepts is taking three-quarters of the applicable rate for departure and return days: $55.50 on the low-cost rate of $74, for example. Any other consistent proration method that reflects reasonable business practice is also acceptable, as long as you apply it consistently.³

Where These Rates Don’t Reach

The rates in the IRS annual per diem notice cover the continental United States only. Alaska, Hawaii, and all U.S. territories are outside the system. The Department of Defense sets rates for Alaska and Hawaii, and the U.S. Department of State publishes rates for international destinations.⁸ Check the right agency’s rate table before applying per diem to travel outside the lower 48.

The One-Year Rule and Your Tax Home

Per diem only works for travel that qualifies as temporary. If you realistically expect an assignment to last one year or less, related travel expenses are deductible. Any assignment expected to last more than a year is indefinite, and travel expenses to that location aren’t deductible at all.⁹

Expectation drives the answer. If you start out planning a six-month project and at month four you realistically expect to stay 14 months, your travel becomes nondeductible from the moment your expectation changes, not when you cross the one-year mark.⁹

The other threshold question is where your tax home sits. Your tax home is generally the city or area of your main place of business, not where your family lives. If you work in multiple locations, the IRS weighs total time spent, level of business activity, and income earned at each location to decide which one is your main workplace.³

Without a fixed tax home, per diem doesn’t help you. The IRS treats travelers with no primary workplace and no qualifying regular residence as itinerants, whose tax home is wherever they happen to be working. An itinerant is never “away from home” and cannot deduct travel expenses.

1
Internal Revenue Service. 2025-2026 Special Per Diem Rates Notice 2025-54
2
Internal Revenue Service. Revenue Procedure 2002-63
3
Internal Revenue Service. Publication 463 – Travel, Gift, and Car Expenses
4
U.S. General Services Administration. GSA Releases FY 2026 CONUS Per Diem Rates for Federal Travelers
5
Internal Revenue Service. Per Diem Rates Frequently Asked Questions
6
Internal Revenue Service. Per Diem Payments Frequently Asked Questions
7
Office of the Law Revision Counsel. 26 USC 274 – Disallowance of Certain Entertainment, Etc., Expenses
8
U.S. Department of State. Per Diem Rates
9
Internal Revenue Service. Topic No. 511, Business Travel Expenses