Per diems and taxes: Top 7 frequently asked questions (with answers) (2023)

The per diem sounds simple - until the tax deadline.

When your accountants ask you for missing expense reports and your employees have questions about filing their own taxes...

The more you know, the easier it will be.

Sending your employees to remote locations for work can be a necessary part of owning a business. It's a way to improve your business knowledge, facilitate customer interaction, and increase your customer reach.

Simplification of daily wages

Despite all the benefits, having employees who travel can be a logistical nightmare. The paperwork required for travel managers and accounting teams is extensive, especially when it comes to taxes.

Workers must be paid for travel time if it is work-related. The resulting per diem covers all their expenses in a fixed amount, making your paperwork more efficient.

Whenever you're dealing with expense and tax reporting, "efficient" doesn't mean "easy." These tips will help you better organize your reports to make tax time (and answering employee questions) less complicated later.


1. What is included in my daily allowance?
2. Can I get a higher daily wage rate?
3. Is my daily allowance taxable?
4. How can I prepare my log report to avoid problems at tax time?
5. Does my hotel accept my daily allowance?
6. What about taxes and tips?
7. Do I need payment certificates when I submit a tax return?

1. What is included in my daily allowance?

Employers dealing with traveling employees must have procedures in place to handle scale payments, commonly known as per diems.

These fixed amounts are a simplified way of incurring incidental expenses on a trip. It is deceptive that the daily allowance does not cover everything.

The term is used casually to describe cost financing, but it is actually clearly defined. There are standard rates that apply at the federal level.

Breakdown of per diem coverage

What is included in your employee's per diem is not arbitrary.

If your company uses federal guidelines,The Tax Administration defines itas:

“An allowance paid to your employees for accommodation, meals and incidental expenses incurred during travel. This allowance is in lieu of paying their actual travel expenses.”

In short, as long as the costs are intrinsically related to the business purpose and the employee's work goals, they are covered by per diems.

It might be easier to explain to your traveling employee what the per diem does not cover.

Most employers' policies exclude the following (when outside of the job requirements):

  • Souvenirs
  • Alcohol
  • Room service
  • Fun

The policy may cover something like dry cleaning of work clothes, but not personal clothing.

Everything else, including fuel and meal allowance, you have to define in yourstravel policy.

One thing to note in this section is that self-employed travelers fall into the second category with per diems. They can still receive a lump sum, but their coverage must only include the cost of meals.

2. Can I get a higher daily wage rate?

Per diem rates by state are set by the government and change every fiscal year. They were designed for government employees, but are used by private companies to ensure their rates meet federally recommended guidelines.

Rate the warnings you need to be aware of

However, it is important to know that per diems vary by location. Employers and tour operators can useGeneral Services Administration (GSA) search for the standard daily rate for a specific zip code and month of travel.

This is important because many hotels willincrease your nightly ratesaround seasonal periods, such as Christmas in New York when tourists like to visit. Employee travel pay should not be adversely affected by holiday spikes and peak tourist vacation dates.

The different per diem amount also takes into account price ranges in the location. A hotel in New York is likely to be more expensive than one in a small town in Georgia.

However, the business purpose of the expense is the same. The per diem allowance should reflect the actual expected costs to be incurred.

Leaving the country for business purposes

Another concern is when the employee must leave the continental United States (CONUS) for work. Going to Alaska and Hawaii or out of the country means that the flat rate won't be enough to cover expensive expenses.

In these individual cases, increasing the daily wage makes sense. Payment of actual costs should not come from the employee's salary. And traveling outside the continental US is of course more expensive.

In all other situations, if your company follows government guidelines, it is easier to handle requests for higher wages. Otherwise, it is up to you to approve the request or not.

Look at theseThe most popular day trips from business travel destinations

3. Is my daily allowance taxable?

Per diems are not part of an employee's standard salary, so they are not technically taxable.

However, under certain conditions it can be considered taxable income.

When the daily allowance is taxable

You will still need to include the business travel per diem on your tax return. Generally, they are not included in the amount of tax owed by the employee.

You should advise your passengers that they may be taxed if they fall under any of these conditions:

  • Your company allows a fixed amount that is higher than the standard federal rate set by the IRS
  • The employee did not report his travel expenses to the employer on time
  • The report lacked essential information
  • The employer did not ask for an expense report in addition to daily wages

Reassure your employees that they will not be taxed on their business travel expenses if they avoid these factors.

Are you a small business? Find tips on budgeting for employee travelhere

4. How can I prepare my log report to avoid problems at tax time?

The tax burden of the daily wage falls equally on both the employer and the employee. Both parties should submit their documentation with supporting documentation.

Submitting per diems is similar to submitting any other expense report. Whether it will go only to the federal department or also to the state department depends on the location of the company.

The thing to be very careful about is the fact that if the filer makes a mistake - your employee may end up being taxed when they shouldn't be.

Prepares per diem reports to avoid errors

Whether it's "required" or not, it's helpful for every employee to submit receipts along with an expense report. But it can be difficult to keep everything organized, especially when multiple people are traveling.

To save time and mistakes down the line, whenever someone submits an expense, check for key information before accepting it. It may take a few extra seconds now, but it will save hours of headache and costly mistakes later.

Look for small things that are easy to miss, such as:

  • Travel dates
  • Names of places where the employee had expenses
  • Reconciliation of invoices with specified costs
  • Copies of brochures or other documentation showing the purpose of the trip

Check the report to make sure it includes everything, then you won't have to waste time looking for it later.

You may also like:How to adjust a company's mileage policy when gas prices skyrocket

5. Does my hotel accept my daily allowance?

Per diems and taxes: Top 7 frequently asked questions (with answers) (1)

Not all hotels are willing to negotiate their rates and are not required to adjust your rate to federal per diem guidelines. If the hotel you're looking for has something called a "GOV" rate, it's often similar to a federal per diem rate.

Large bookings may qualify for corporate discounts, but you must negotiate the rate in advance.

Do not book without comparing prices

Before you book, check the rate they are using and see how it compares to what you are giving your employee as accommodation per diem. Don't forget to include taxes as miscellaneous travel expenses.

Yes, this can take a lot of time. However, it pays to negotiate for the best discounts. Instead of doing the work yourself, you can go through a corporate hosting network such asHotel motor.

Advantages of working with Hotel Engine

By creating a free account with our business accommodation solution, the agreed prices are already there. You can choose from over 700,000 hotels worldwide and directly book hotel accommodation for your travelers.

Unlike other discount hotel platforms, there are no booking fees, contracts or minimums for corporate rates. This simplifies billing, making expense reports streamlined.

All the tools you need to book a room and give your travelers the freedom to make changes or bill charges are in one central place. Even better, all reconciliations and reports are quickly available.

When it's time to review per diem costs, information about your accommodation is at your fingertips through the Hotel Engine platform.

Related:Hotel Engine as compensation for employees? Here's how it works…

6. What about taxes and tips?

When dining out, you are expected to leave a tip. But what counts as a proper tip isn't set in stone.

The meal and incidentals (M&E) rate you provide as part of your per diem should include a fair and reasonable gratuity as well as cover for taxes.

How to calculate M&IE

Diaries are divided into three categories:

  1. Accommodation
  2. Mileage
  3. Meals/incidental expenses

M&IE focuses on daily living expenses for food and necessities. These incidentals include fees and tips for services rendered.

The calculation of meals, as with accommodation, differs depending on the area. Meals in a big city will cost more on average than those in rural towns. The tax administration has aPer diem calculatora tool that breaks down the standard rate by zip code.

Incidental charges are set at $5 per day, no matter where you are.

In case the employer will cover at least one meal, such as at a conference, the Proportional Meals Rate is often used. This is the average of the standard ration price and the government ration price (GMR), which is much cheaper.

The formula is simple when you use the IRS Per Diem Calculator, which does the work for you. Note that this is only when the trip is in CONUS.

7. Do I need payment certificates when I submit a tax return?

Per diems and taxes: Top 7 frequently asked questions (with answers) (2)

The typical person does not think about receipts as a business owner.

If they need to keep their per diem accounts, it's up to you to let them know.

In general, non-government employees do not need to have actual receipts for anything covered by the per diem. They may specify the amount of compensation instead of costs. But if they plan to claim anything above the allowable daily wage, they will need to have these certificates.

However, your reports often require original receipts. If the employee wishes to keep their own records, they will need to make copies before submitting the travel expense report to the appropriate department.

Related:What employers should know about daily wages and employee rights


Dealing with taxes is easy enough - if that's your specialty. However, for people who have to travel for work and those who organize their expenses, it can be cumbersome.

With these tips, your employees will know what their per diem covers and what you need to bring after the trip. Staying organized now will make the whole process much easier later.

Join Hotel Engine's free platform nowand get access to lower prices at more than 700,000 hotels worldwide.

Per diems and taxes: Top 7 frequently asked questions (with answers) (3)

Audrey FairbrotherContent Manager and SEO

Audrey Fairbrother is Head of Content and SEO at Hotel Engine. He spends his days writing about all things business travel, researching topics that matter to Hotel Engine's audience, and cultivating the company's brand voice. When not working, Audrey enjoys spending time with her family and hiking in the nearby Rockies with her dog, Albie.


How does per diem affect taxes? ›

Per diem payments are not considered wages—and are therefore non-taxable—as long as they meet certain conditions. You will be subject to taxes if any of the following are true: Payment is more than the allowable federal per diem rate. You did not file an expense report with your employer.

What are the IRS rules about per diem? ›

A per diem allowance is treated as paid only for meal and incidental expenses if (1) the payor pays the employee for actual expenses for lodging based on receipts submitted to the payor, (2) the payor provides the lodging in kind, (3) the payor pays the actual expenses for lodging directly to the provider of the ...

What is the IRS rule for long term per diem? ›

If an assignment to a location is expected to last more than one year, or actually lasts longer than one year, then any per diem paid at this "temporary" location is considered compensation. The one-year rule applies beginning with the date the employer determines the assignment will exceed one year.

What are the three per diem expense methods? ›

Per diem only covers three types of expenses: Lodging (e.g., hotel) Meals. Incidental expenses (e.g., dry cleaning)

Does the IRS tax per diem? ›

You can pay more or less than the federal per diem rate. However, if you pay more than the federal per diem rate, the excess will be taxable to the employee.

Can you deduct meals if you get per diem? ›

Remember that similar to the rules for deducting actual business meal expenses, you can only deduct 100% of the meal and incidental expense Per Diem rate. If you are a sole proprietor / self employed, you can only use the Per Diem rate for meals and incidental expenses.

Does IRS require receipts for per diem? ›

The report must include: • The business purpose of the trip, • The date and place of the trip, and • Receipts for lodging (if using the meals-only per diem rate). The employee must file the expense report with the employer within a reasonable period of time (60 days).

Does the IRS audit per diem? ›

The D.O.L. has made it clear that per diem audits are an “ongoing initiative” and a priority for the IRS.

Are receipts required for per diem? ›

Having a per diem allows employees to avoid collecting tons of receipts. As long as the cost for traveling is under the per diem rate, there is no need to have any type of proof of purchase. It also allows you as the business owner to have a better grasp of the various travel costs presented to your company.

What is the 75% per diem rule? ›

According to the Federal Travel Regulation (FTR), travelers are entitled to 75% of the prescribed meals and incidental expenses for one day travel away from your official station if it is longer than 12 hours.

What is the 300% rule per diem? ›

The traveler's authorizing official may authorize or approve actual expense allowance up to 300 percent of the locality per diem rate, and the traveler will be reimbursed for actual expenses up to that amount. See the JTR, paragraph 020307 for more information on actual expense allowance.

How do you calculate per diem rate? ›

Per diem interest is calculated by multiplying the loan amount by the annual interest rate and dividing by 365 before multiplying by the number of days before the first of the month. Doing the calculation can help you understand how much you need to bring for closing.

What is a reasonable per diem? ›

For meals and incidental expenses (M&IE), the standard GSA per diem tier rate is $55 to $76 per day, depending on where you're traveling. In some cases, the per diem rate may be higher if the city's cost of living is higher than the average. On its own, the standard rate for incidental expenses is $5 per day.

What are examples of per diem expenses? ›

A per diem is a daily allowance given to employees by a company so that the employee can cover certain expenses while traveling for business. These expenses include lodging, meals, and incidentals.

What type of income is per diem? ›

A per diem payment is not considered income by the IRS. Rather, it is a reimbursement for expenses. In this case, since it can be treated as a deduction on your tax return, the money is not taxable. As with anything related to taxes, certain conditions must be met.

Does per diem show up on W-2? ›

Paying Taxes On The Per Diem You Receive

Your employer should report this to you on a W-2 form. However, don't think that per diem can be used as a salary alternative. Per diem policies cannot be created in a manner that allows what should be wages to be labeled as something else.

Do employers report per diem to IRS? ›

Wages are taxable by the federal government and the state of California. However, per diems are generally not considered wages. Therefore, when handled correctly, per diems are not considered taxable wages. There are exceptions that employers should understand, including a recent court case involving per diems.

Is per diem added to your paycheck? ›

4. Do I include per diem payments in my employee's wages? Per diem payments are not part of the employee's wages if the payment is equal to or less than the federal per diem rate and the employer receives an expense report from the employee.

How does per diem work? ›

Per diem, from the Latin for by the day, refers to daily allowances paid to employees to cover costs incurred while on a business trip. Business expenses that are covered typically include accommodation, food, and other incidental expenses such as fees and tips for services.


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