Is Per Diem Taxable? What the IRS Rules Say for 2026 to 2027

Per diem is not taxable when your employer pays it under an accountable plan and it stays at or below the federal rate for the trip. It becomes taxable income on any amount above the federal rate, and in full if the trip is never documented.

Per diem is a daily allowance an employer pays for lodging, meals, and incidentals on work travel instead of reimbursing receipts. The IRS sets the tax rules in Rev. Proc. 2019-48 and Publication 463, and the rates below are the ones in effect for travel from October 1, 2026.

That is the whole rule. The rest of this post covers the cases where people get caught: payments above the rate, missing expense reports, day trips, long assignments, contractors, and what shows up on a W-2.

Is per diem taxable?

No, as long as four things are true. The IRS calls this an accountable plan.

Meet all four and the per diem never touches your W-2. You do not report it as income, and you do not deduct the expenses, because the per diem already covered them.

Per diem covers two things: a nightly cap for the hotel room and a flat daily amount for meals and incidentals. The federal rate for both is set by the U.S. General Services Administration for every county. For FY2027, which runs October 1, 2026 through September 30, 2027, the standard lodging rate is $113 a night, and 295 destinations have a higher cap. Engine's per diem rates page looks up the FY2027 cap by city, ZIP code, or state, month by month.

When is per diem taxable?

Five situations turn some or all of a per diem into wages.

1. The company pays more than the federal rate. Only the amount above the rate is taxable. If the lodging cap in Dallas is $184 and your company pays a $250 flat lodging per diem, the $66 difference goes on your W-2 as wages, with income tax and payroll tax withheld. The first $184 stays tax-free.

2. There is no expense report. If the company pays per diem without requiring you to document the trip, or you never file, the IRS treats the whole payment as wages. The amount does not matter. A per diem at exactly the federal rate is still fully taxable if nobody can show when you traveled, where, and why. A flat monthly travel stipend that is paid whether or not you travel fails the same test.

3. The trip had no overnight stay. Per diem is for travel away from home that requires sleep or rest. A same-day trip, even a long one, does not qualify. Any meal per diem paid for a day trip is taxable.

4. The assignment is expected to last more than a year. The IRS treats an assignment expected to run past 12 months as indefinite. The work location becomes your tax home, and per diem paid there is taxable from the start. This is the "per diem after 12 months" rule contractors and project crews run into.

5. You own 10% or more of the company. Owners cannot use the per diem method for lodging. They need actual hotel receipts to keep the reimbursement tax-free. The meals and incidentals per diem still works.

How does taxable per diem show up on a W-2?

If your per diem is at or below the federal rate and you met the accountable plan rules, it does not appear on your W-2 at all. Your employer does not report it, and you do not file anything for it.

If your per diem is above the federal rate, the W-2 splits it. The amount up to the federal rate goes in box 12 with code L and is not taxed. The excess goes in box 1 as wages, with income tax, Social Security, and Medicare withheld in the pay period the per diem was paid, not at year end. Under a nonaccountable plan, the whole payment goes in box 1.

If your employer put reimbursements in box 1 and you met all the accountable plan rules, ask for a corrected W-2. It matters more than it used to. Since 2018, W-2 employees cannot deduct unreimbursed travel expenses on their own return, so a per diem that is taxed by mistake cannot be fixed at filing time.

In payroll terms, non-taxable per diem runs through a reimbursement code that skips withholding, and taxable per diem runs through a wage code. If your pay stub shows per diem with tax taken out, one of the five situations above applies, or the payroll setup is wrong.

What counts as the federal rate?

The federal rate is the GSA per diem for the county where you stay, in the month you stay there. Caps change by month in 149 destinations, so the same hotel can be inside the rate in November and outside it in June. The FY2027 rate changes page lists every destination that moved on October 1.

The meals and incidentals rate is a flat daily amount with five tiers. Most of the country is at $68.

Companies have a second option. Instead of looking up each city, they can use the IRS high-low method: one rate for a list of high-cost cities and one rate for everywhere else. For travel from October 1, 2026, the high rate is $329 a day and the low rate is $230, both covering lodging, meals, and incidentals. A company has to pick one method per employee for the year and stick with it. Our IRS per diem rates post covers the high-low list and what changed.

Is per diem taxable for contractors and the self-employed?

Yes, in the sense that it is income. A per diem paid to a 1099 contractor is part of what the client paid them, reported on Form 1099-NEC like the rest of the fee. There is no accountable plan between a client and a contractor.

The contractor then deducts travel expenses on their own return. Self-employed people can use the federal meals and incidentals per diem instead of saving food receipts, but not the lodging per diem. Hotel rooms need actual receipts. They also cannot use the high-low method.

Employees on long project assignments sometimes get reclassified as contractors to avoid these rules. That does not work if they are employees in practice, and the IRS treats the per diem accordingly.

Is per diem taxable in Texas or California?

State income tax follows the federal treatment in almost every case. If the per diem is tax-free federally, it is tax-free on the state return. If part of it is wages on your W-2, that part is taxable in a state with an income tax.

Texas has no state income tax, so there is nothing extra to pay there either way. California taxes the same amount the W-2 shows as wages.

Can the company deduct per diem?

Yes. The lodging portion is fully deductible as a business expense. The meals portion is limited to 50%, which is why the IRS splits the high-low rate into a meals share of $86 for high-cost cities and $74 elsewhere. Employers in the transportation industry can deduct 80% of the meals share for drivers and crews subject to hours-of-service limits.

A per diem that was taxable to the employee is deductible as wages instead.

What records keep per diem tax-free?

Under the per diem method, the amount is settled by the rate. What the IRS still needs is proof of the trip: the dates, the destination, and the business purpose, reported to the employer within 60 days. Hotel receipts are not required for the lodging per diem to count, though many companies ask for them anyway to check the room against the cap.

Our per diem expense report template captures all three, applies the GSA cap, and handles the 75% rate on the first and last day of travel. Put the same rules in writing in your travel policy so travelers know what to file and when. Our per diem policy template has that language ready.

Per diem tax questions

What is the IRS limit for per diem? The federal rate for the trip. That is the GSA lodging cap plus the meals and incidentals rate for the county and month, or the IRS high-low rate of $329 a day in high-cost cities and $230 everywhere else. Anything above it is taxable wages.

Does per diem count as income? Not when it is paid under an accountable plan at or below the federal rate. It is a reimbursement, it does not appear on your W-2, and you do not report it. Only the taxable part counts as income.

What is the 300% rule for per diem? Federal travelers can be reimbursed actual lodging expenses up to 300% of the per diem rate with agency approval, when no room is available at the cap. It is a federal travel rule, not a tax rule. For a private employer, anything paid above the GSA rate without receipts is taxable wages. How hotels price their own government rate, and who qualifies for it, is covered in our government rate hotels guide.

What is the IRS per diem rate for meals, and is it taxable? The FY2027 meals and incidentals rate is $68 a day at the standard rate, with tiers of $74, $80, $86, and $92 in higher-cost cities, and 75% of the rate on the first and last day of travel. Same tax rules as lodging: tax-free at or below the rate under an accountable plan, taxable above it.

Does per diem count as income for a mortgage or loan? Lenders decide that, not the IRS. Tax-free per diem does not appear on a W-2, so most lenders do not count it.

Is per diem taxable after 12 months? Yes, once the assignment is expected to last more than a year. See the one-year rule above.

Do I need receipts for per diem? Not for the amount, if your employer uses the per diem method. You do need to document the dates, place, and purpose of each trip.

Why is my per diem showing up as taxable on my W-2? One of five reasons: the rate was above the federal rate, the company has no accountable plan, you filed the trip report late or not at all, the trips had no overnight stay, or the assignment is expected to last more than a year. If none of those apply, the payroll coding is wrong and the company owes you a corrected W-2.

Is per diem taxable for travel nurses? Only if you have no tax home. Per diem and housing stipends are tax-free when you keep a permanent residence you pay for while you work the assignment, and the assignment is temporary. Without a tax home, the IRS treats the stipend as wages.

Is per diem better than a raise? For an employee who travels, usually. Per diem at the federal rate is tax-free to the employee and free of payroll tax for the employer. A raise is taxed on both sides. The catch is that per diem only covers days of documented travel.

Is mileage reimbursement taxed like per diem? Same rules. Mileage paid at or below the IRS standard mileage rate under an accountable plan is tax-free, and anything above it is wages.