Per Diem

What Is Per Diem?

Per diem (meaning “for each day” in Latin) is a set amount of money an organization gives an employee daily to cover expenses incurred while traveling for business. While employers aren’t legally required to reimburse employees for travel expenses, it’s considered a good business practice to do so. Private employers can set their own per diem rates or use the same rates set for federal employers, which are regulated by the General Services Administration (GSA).

What Does Per Diem Cover?

Generally, per diem covers lodging, meals, and incidental expenses. Eligible per diem expenses may vary between organizations, but they usually include:

• Hotel rooms
• Breakfast, lunch, and dinner
• Room service
• Laundry, dry cleaning, and clothes pressing
• Fees and tips for service personnel (e.g., food servers or luggage handlers)

Some employers pay per diem up front while others reimburse employees after the trip is over.

Per Diem Eligibility

Employees traveling for official business purposes can qualify for per diem expense reimbursement. Even though employers are not legally required to provide per diem coverage, it’s good business practice to do so and employees will likely expect it.

How Does Per Diem Work?

To calculate the per diem pay for traveling employees:

• Use your company (or federal) per diem rates.
• Determine how many days of travel are eligible for prepaid per diem or reimbursement.
• Multiply the per diem rate by the number of eligible travel days.

For meals, transportation, and incidental expenses, per diem is typically calculated per day. However, per diem for a hotel is calculated by the number of reserved nights.

Per Diem Rates 2024

Per diem rates are fixed amounts of money based on the average costs of living in the locations employees travel to within the continental United States. The GSA calculates new per diem rates for each fiscal year that go into effect every October 1.

A per diem rate search for any of the lower 48 states will yield two tables: one for daily lodging rates and one for meals and incidental expenses (M&IE). The latter lists the limits for breakfast, lunch, dinner, and incidental expenses that make up the daily total per diem. The GSA also includes an M&IE rate for the first and last day of travel, which is 75% of normal expenses. This is because the employee will usually not need to pay for the same number of meals or incidentals on those days.

GSA per diem rates are only regulated for federal employees, but any employer can use these rates as guidelines if they so choose.

The per diem rates for locations outside the lower 48 states can be found here:

• Alaska, Hawaii, and US territories (set by the Department of Defense)
• Foreign countries (set by the State Department)

Per Diem Examples

Let’s say your company reimburses $200 per night for hotel stays and $50 a day for meals when an employee attends a three-day convention in Fresno, CA. Here’s what your per diem calculation will look like:

($200 x 2 Nights) + ($50 x 3 Days) = $550 Total Employee Reimbursement

Or, you can use the GSA’s 2023 per diem rates for Fresno, CA:

• Lodging: $124
• Breakfast: $16
• Lunch: $17
• Dinner: $31
• Incidental expenses (fees, tips, etc.): $5
• First and last day of travel: $51.75

In this case, your per diem calculation will be:

(Max Lodging Total) + (Full Day M&IE) + (First & Last Day of Travel)

($124 x 2) + ($16 + $17 + $31 + $5) + ($51.75 x 2) = $420.50 Total Per Diem

You can also use the GSA’s per diem calculator to figure out the federal rates.

Alternatively, you may pay one flat rate per day for all high-cost locations and a separate daily flat rate for all low-cost locations (what the IRS calls the “high-low method”).

How Is Per Diem Taxed?

In certain cases, a per diem payment ends up counting as an employee’s taxable wages. Applicable situations include:

• The employee doesn’t file an expense report with their employer within 60 days (if the employer requires an expense report).
• The employee filed an expense report, but it didn't include the date, time, place, amount, and business purpose of the expenses.
• The employer pays a fixed amount for business expenses and doesn’t require an expense report.
• The employer’s per diem payment is over the standard federal rate.

Is Per Diem Considered Income?

No, per diem is not considered employee income unless the reimbursement payments exceed the maximum federal per diem rate. At that point, any excess is taxed as ordinary income.

Can You Write Off Per Diem?

Employees can only deduct per diem payments under very specific circumstances. In contrast, businesses can generally write off per diem payments, although meals are subject to a 50% limit.

Do You Report Per Diem on a W-2?

Employers should only report per diem payments as taxable wages on an employee’s W-2 form in the following cases:

• Your employee didn’t return leftover money after their business trip.
• Your per diem allowance is higher than the standard federal rate.

See IRS Publication 535, Chapter 11, for more details.