IRS Announces New Per Diem Rates For Business Travel
The IRS has released its annual update to per diem rates for taxpayers to use to substantiate certain business expenses while traveling away from home. The new rates take effect October 1, 2026, and generally apply to per diem allowances paid for travel away from home on or after that date. The update includes special rates for the transportation industry, the rate for incidental expenses, and the rates and list of high-cost localities used for the high-low substantiation method.
The IRS allows taxpayers to use per diem (that’s Latin for “for each day”—remember, lawyers love Latin) rates to simplify reimbursements. Under the rules, instead of requiring you to document every dollar spent on lodging, meals, and incidental expenses, employers can use prescribed daily amounts to reimburse you for certain business travel expenses.
What Are Per Diem Rates?
A per diem rate is a fixed daily amount used to substantiate certain expenses incurred while traveling away from home on business, including lodging, meals, and incidental expenses. Depending on the method used, your employer may reimburse you for lodging and meals and incidental expenses together, or for meals and incidental expenses alone.
Under an accountable plan, properly substantiated reimbursements are generally not treated as wages. That doesn’t mean you can simply pocket a per diem payment without accounting for the trip—you still must substantiate the time, place, and business purpose of the travel. And if an allowance from your employer exceeds the permitted amount under federal rules, the excess generally must be treated as wages unless it is returned to your employer.
The IRS doesn’t require you to use the per diem rates. Instead, you can substantiate actual allowable travel expenses with adequate records. That’s just more paperwork.
Reimbursed & Unreimbursed Employee Expenses
Here’s why that reimbursement piece matters.
Most employees cannot deduct unreimbursed travel expenses on their federal income tax returns. The Tax Cuts and Jobs Act (TCJA) temporarily suspended miscellaneous itemized deductions subject to the 2% adjusted gross income floor beginning in 2018. That rule was scheduled to expire after 2025, but the One Big Beautiful Bill Act (OBBBA) made the disallowance permanent. The result? Most taxpayers are out of luck when it comes to deducting travel expenses.
There are exceptions. Members of a reserve component of the Armed Forces, qualified performing artists, and state or local government officials paid in whole or in part on a fee basis may still be able to deduct qualifying unreimbursed employee business expenses as an adjustment to income. Employees with impairment-related work expenses may also qualify for a deduction under separate rules, as may eligible educators.
For everyone else, employer reimbursement can make a significant difference in your bottom line. If your employer requires you to travel for work, it’s worth understanding the company’s reimbursement policy before you hit the road.
And don’t forget about business mileage. The IRS separately sets a standard mileage rate for qualifying business use of a vehicle, but most employees can’t use that rate to deduct unreimbursed work-related mileage.
Self-Employed Taxpayers
The rules are different for self-employed taxpayers. Self-employed taxpayers can generally deduct ordinary and necessary business travel expenses on Schedule C (or Schedule F for farmers). However, the per diem rules work a little differently: self-employed taxpayers generally cannot use a per diem amount to substantiate lodging expenses. Actual lodging expenses must be substantiated.
For meals and incidental expenses, however, self-employed taxpayers can use the federal M&IE rate—the standard meal allowance—instead of substantiating the actual cost of each meal. You still need records showing the time, place, and business purpose of the travel.
And be thoughtful, since the rules still matter. Using a per diem amount doesn’t necessarily mean you can deduct the full amount. Business meal expenses are generally subject to the 50% deduction limitation.
The New Numbers
Under the high-low substantiation method, the new per diem rates are $329 per day for travel to a high-cost locality, up from $319, and $230 per day for travel to any other locality within the continental United States, up from $225.
Of those amounts, $86 of the high rate and $74 of the low rate are treated as paid for meals for purposes of the business-meal deduction rules. The M&IE-only substantiation rates are also $86 and $74, respectively.
The special M&IE rates for taxpayers in the transportation industry are unchanged: $80 per day for travel within the continental United States (CONUS) and $86 per day for travel outside the continental United States (OCONUS).
The rate for incidental expenses only remains $5 per day.
What Is The High-Low Method?
Travel costs obviously aren’t the same everywhere. A hotel room in Manhattan likely costs considerably more than one in a small town in the Midwest.
Employers can use federal per diem rates that vary by locality, but the high-low method offers a simpler alternative. Instead of tracking a different rate for every destination, the method divides travel within CONUS into two categories: designated high-cost localities and everywhere else.
For the new rate year, a locality is considered high-cost if it has a federal per diem rate of $280 or more, up from $272 last year.
And because travel costs change, so does the list.
Changes To High-Cost Localities
For 2026–2027, the following localities have been added to the list of high-cost localities:
- Tucson, Arizona
- San Mateo/Foster City/Belmont, California
- Albuquerque, New Mexico
- Cody, Wyoming
Panama City, Florida, has been removed from the list.
A number of destinations remain on the list but have changed the portion of the year during which they’re treated as high-cost localities:
- Napa, South Lake Tahoe, and Yosemite National Park, California
- Aspen, Steamboat Springs, and Telluride, Colorado
- Fort Myers, Florida
- Falmouth, Massachusetts
- Toms River, New Jersey
- New York City, New York
- Philadelphia, Pennsylvania
- Hilton Head, South Carolina
- Manchester and Montpelier, Vermont
- Port Angeles/Port Townsend, Washington
There’s also a correction to the applicable high-cost period for Sun Valley/Ketchum, Idaho.
Philadelphia, for example, is considered a high-cost locality from October 1 through November 30 and from September 1 through September 30 under the new notice. That’s a good reminder that a locality doesn’t necessarily have high-cost status all year.
Transportation Industry
Special rules apply to transportation industry taxpayers. For 2026–2027, the special M&IE rates remain at $80 per day for travel within CONUS and $86 per day for travel outside CONUS.
You’re generally considered to be in the transportation industry if your work directly involves moving people or goods by airplane, barge, bus, ship, train, or truck and regularly requires travel away from home to areas with different federal M&IE rates.
Incidental Expenses
The incidental expenses rate remains $5 per day. For per diem purposes, incidental expenses generally include fees and tips given to porters, baggage carriers, hotel staff, and similar workers.
A Word About Recordkeeping
Per diem simplifies recordkeeping, but it doesn’t eliminate it. Even when you use a federal per diem rate, my longstanding rules still apply: Keep excellent records. You still need to substantiate the time, place, and business purpose of the travel. What the per diem method can eliminate the need to substantiate the actual amount of certain expenses covered by the allowance.
For employers, that distinction is important. A payment doesn’t become tax-free simply because you call it a per diem.
Effective Date
The new rates generally apply to per diem allowances for lodging, meals and incidental expenses, or M&IE only, paid to an employee on or after October 1, 2026, for travel away from home on or after that date.
For taxpayers computing deductible travel expenses, the new rates apply to qualifying M&IE or incidental expenses paid or incurred on or after October 1, 2026.
Official Guidance
You can find the complete list of high-cost localities and the new per diem rates in IRS Notice 2026-60.
For federal per diem rates by locality, including lodging and meals and incidental expenses rates, you can also search the General Services Administration (GSA) per diem database by city, state, or ZIP code.
