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Per Diem

A fixed daily allowance provided to employees for meals and incidentals while traveling for business, simplifying expense management and IRS compliance.

Expense ManagementPayroll

FAQs

Do employees pay taxes on per diem payments?

Not if the per diem is for business travel and doesn't exceed the IRS-approved rate. Per diem payments that meet the accountable plan rules (business purpose, adequate accounting, return of excess) are excluded from taxable wages. Payments above federal rates, or for non-travel situations, are included in W-2 wages and subject to withholding.

What is the first and last day per diem rule?

The IRS allows only 75% of the M&IE per diem rate on the first and last day of travel, reflecting that travel days typically involve partial-day meals. Employers using per diem should apply this 75% rule on departure and return days. Some companies simplify by just paying full per diem for all travel days and absorbing the minor compliance risk.

What expenses does M&IE per diem cover?

M&IE (Meals and Incidental Expenses) per diem covers meals (breakfast, lunch, dinner, snacks), tips on meals, transportation between meal locations and business sites, and incidentals (bellhop tips, hotel porterage, laundry costs). Lodging is separate from M&IE and is typically reimbursed at actual cost up to the GSA lodging rate for the location.

Related Terms

T&E (Travel and Entertainment)

Employee spending on business travel, meals, and client entertainment, managed through expense reports and corporate policies.

Tax Withholding

The process by which employers deduct income taxes from employees' paychecks and remit them directly to tax authorities on the employee's behalf.

Benefits Administration

The management of employee benefits programs including health insurance, retirement plans, PTO, and other compensation components.

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Per diem (Latin for 'per day') is a standardized daily allowance provided to employees for meals and incidental expenses (M&IE) incurred while traveling away from home for business purposes. Companies either set their own per diem rates or follow the General Services Administration (GSA) published rates, which vary by city based on local cost of living.

The IRS annually publishes per diem rates through the GSA that employers can use as a safe harbor for employee expense reimbursements without requiring employees to submit receipts for covered expenses. If the employer reimbursement doesn't exceed the federal per diem rate, the payment is not considered taxable income to the employee. Reimbursements above the federal rate are taxable wages.

For fiscal year 2024, the standard CONUS (Continental US) per diem rate is $166/day ($107 lodging + $59 M&IE). High-cost localities (New York, San Francisco, Washington DC, etc.) have higher rates. OCONUS (overseas) rates are separately published by the State Department.

Per diem simplifies T&E administration: instead of collecting and reviewing individual meal receipts, employees receive a fixed daily amount and keep any unspent portion (or pay the difference if they spend more). This eliminates receipt collection hassle, speeds reimbursement, and provides cost predictability for finance.

Companies can set their own per diem rates independent of GSA rates, but exceeding GSA rates may create taxable income for employees. Some companies use a hybrid approach — per diem for meals only (no receipts needed) while requiring receipts for hotel, airfare, and ground transportation.