Per diem

Per diem is a daily allowance employers provide to cover travel-related expenses incurred by employees during business trips. The term comes from Latin and means “per day,” reflecting its purpose, to reimburse employees for everyday costs like lodging and meals while traveling for work.

How Per Diem Works

When employees travel for work purposes, outside their regular commute, many employers opt to reimburse them through a per diem system rather than reimbursing individual receipts. While not mandated by federal law, providing per diem is a common and practical business practice, especially for companies that rely on employee travel.

Employers have flexibility in how they offer per diem:

• As an advance (via cash, check, or company card)
• As a reimbursement after the trip
• To cover full or partial travel costs

Per Diem Guidelines and Rates

Private businesses, including those using payroll platforms like Beyond, can set their own per diem rates. However, federal agencies follow specific standards:

• GSA (General Services Administration) sets per diem rates for the 48 contiguous U.S. states and D.C.
• U.S. Department of Defense establishes rates for non-foreign areas like Alaska, Hawaii, and U.S. territories
• U.S. Department of State sets per diem rates for international travel

The IRS recognizes GSA-set rates as the benchmark for non-taxable per diem payments, but private employers may choose to offer more or less than the federal guidelines.

What Does Per Diem Cover?

Per diem allowances typically cover daily living expenses while on the road for work, including:

• Lodging – hotels, hostels, homestays, or inns
• Meals – breakfast, lunch, and dinner
• Incidentals – tips, laundry, dry cleaning, and similar minor expenses

Note: Per diem does not cover transportation like flights, car rentals, or mileage. For those, the IRS standard mileage rate is usually applied.

Is Per Diem Taxable?

Per diem can be tax-free, but only under certain conditions. According to the IRS, per diem becomes taxable if:

• The employee doesn’t submit an expense report to verify business-related travel
• The report lacks key details like dates, locations, purposes, and amounts
• The employee receives a flat payment without needing to report expenses
• The per diem exceeds federal limits

When taxable, per diem amounts must be included in the employee’s gross wages and reported on their Form W-2 for payroll tax purposes.

Expense Report Requirements

To keep per diem non-taxable, employees must submit a report that includes:

• Purpose of the trip
• Destination
• Dates of travel and expenses
• Receipts for out-of-pocket expenses (when required)

Reports should generally be submitted within 60 days of the business trip’s completion.

How to Calculate Per Diem

Calculating per diem is straightforward:

1. Choose whether to follow your company’s custom rate or use the federal GSA rate
2. Count the number of eligible travel days
3. Multiply the daily rate by the number of business days traveled

Additional GSA guidance includes:

• Only pay 75% of the daily rate on the first and last day of travel
• Use the rate for the location where the employee sleeps each night
• GSA rates typically bundle lodging, meals, and incidentals (M&IE)

Tax Deductibility for EmployersEmployers can usually deduct per diem payments as business expenses on their federal tax returns, making it a smart, compliant method to manage travel reimbursements while keeping things efficient for both the company and the employee.