Per Diem

What Is Per Diem?

Per diem, meaning “for each day” in Latin, is a set amount of money an organization gives an employee each day to cover expenses while traveling for business.

What Is Business Travel Per Diem?

Employees traveling for business incur additional expenses outside of travel costs, like lodging and meals. While employers aren’t legally required to reimburse employees for travel expenses, it’s considered good business practice for employers to reimburse employees for these additional travel costs.

Some employers pay per diem up front, and some reimburse employees after the trip is over.

What Are Per Diem Rates?

Per diem rates are fixed amounts of money employers give their employees for daily expenses. Per diem rates are based on the location employees travel to rather than the amount of money they spend.

Using fixed per diem rates eliminates the need for standard record keeping and simplifies the reimbursement process because employees don’t need to submit receipts to the accounting department.

How Is Per Diem Pay Calculated on Travel Days?

To calculate the per diem pay for traveling employees:

1. Use your company (or federal) per diem rates
2. Determine how many days of travel are eligible for per diem expense prepayment or reimbursement.
3. Multiply the per diem rate by the number of eligible travel days.

For example, your company reimburses 200 dollars per night for a hotel and 50 dollars a day for meals when an employee attends a three-day convention. Here’s what your per diem calculation will look like:

($200 x 2 nights) + ($50 x 3 days) = $550 total employee reimbursement

You can also use the General Services Administration’s (GSA) per diem calculator if you use federal per diem rates.

As an alternative, you can choose to pay one flat rate per day for all high-cost locations and a separate flat rate for all low-cost locations (what the IRS calls the “high-low method”; see IRS Publication 463, Chapter 6).

Is Per Diem per Day or Night?

For meals, transportation, and incidental expenses, per diem is calculated per day. However, per diem for a hotel is calculated by the number of reserved nights.

Where Can I Find Per Diem Rates?

Employers can set their own per diem rates, but, if you want to use a per diem rate where the cost of living has already been taken into account, you can use the GSA’s per diem rates for the lower 48 states. The GSA calculates new per diem rates every year for federal employees to make sure they get fair reimbursement for travel expenses.

But any business can use the GSA’s per diem rates as a guideline for how much employees should be reimbursed when traveling to or within a particular state.

For example, if an employee is traveling to Atlanta, GA in 2022, the GSA sets the per diem at:

• Lodging: $163
• Breakfast: $17
• Lunch: $18
• Dinner: $34
• Incidental expenses (fees, tips, etc.): $5
• First & Last Day of Travel: $55.50

The GSA also includes a meals and incidentals rate for the first and last day of travel, which is 75 percent of normal expenses, since the employee will not need the same number of meals or incidentals that day.

Here are rates for locations outside the lower 48 states (used by the Department of Defense and State Department):

• Alaska, Hawaii, and US territories
• Foreign countries

Who Qualifies for Per Diem?

Employees who are traveling for business purposes can qualify for per diem. However, there is no legal requirement for employers to pay their employees a per diem. As mentioned above, it’s a good business practice, and employees will likely expect it.

Are Employers Required to Offer Per Diem?

Employers are not required to offer a per diem to their employees.

Is Per Diem Taxable?

In certain cases, a per diem payment ends up counting as an employee’s taxable wages. This happens if:

• The employee doesn’t file an expense report with their employer within a reasonable amount of time (if the employer requires an expense report).
• The employer pays a fixed amount for business expenses and doesn’t require an expense report.
• The employer’s per diem payment is over the standard federal rate.

See IRS Publication 463, Chapter 6 for more details.

Is Per Diem Considered Income?

No, per diem is not considered employee income unless the reimbursement payments exceed the maximum federal per diem rate. At that point, any excess is taxed as ordinary income.

Can You Write Off Per Diem?

Employees can only deduct per diem payments under very specific circumstances (see IRS Publication 463, Chapter 6). In general, businesses can write off per diem payments, although meals are subject to a 50 percent limit (see IRS Publication 535, Chapter 11).

Do You Report Per Diem on a W-2?

Employers should only report per diem payments as taxable wages on an employee’s W-2 in the following cases:

• Your employee didn’t return leftover money after their business trip.
• Your per diem allowance is higher than the standard federal rate.

See IRS Publication 535, Table 11-1 and Chapter 11, for more details.