What is per diem allowance?

Per diem (meaning ""for each day"" in Latin) is a fixed amount of money that an organization pays an employee per day to cover expenses incurred while traveling for business. While employers are not legally required to reimburse employees for travel expenses, doing so is considered a good business practice. Private employers can set their own per diem rates or use the same rates set for federal employers, which are   regulated by the General Services Administration (GSA) .

What is included in daily allowance?

Typically, per diem expenses include housing, meals, and incidental expenses.  Eligible per diem expenses  can vary between organizations, but they usually include:

• Hotel Rooms
• Breakfast, Lunch and Dinner
• room service
• Laundry, dry cleaning and ironing clothes
• Fees and tips for service workers (e.g., waiters or baggage handlers)

Some employers pay the per diem allowance upfront, while other employers reimburse employees after the trip is over.

Per diem eligibility

Employees traveling for official business purposes may qualify for per diem expense reimbursement. Even though  employers are not legally obligated to provide per diem coverage  , it is good business practice to do so and employees will expect it.

How does per diem allowance work?

To calculate per diem wages for traveling employees:

•  Use your company's (or  federal ) per diem rate.
• Determine how many days of travel are eligible for prepaid per diem or reimbursement.
• Multiply the per diem rate by the number of eligible travel days.

For meals, transportation, and incidentals, per diem is usually calculated per day. However, for hotels, per diem is calculated based on the number of nights booked.

Per diem rates 2024

GSA per diem rates are regulated only for federal employees, but any employer can use these rates as a guideline if they wish.

Per diem rates for locations outside the lower 48 states can be found here:

• Alaska, Hawaii, and US territories  (determined by the Department of Defense)
• Foreign countries  (determined by the Department of State)

Everyday examples

Let's say your company pays $200 per night for hotel accommodations and $50 per day for meals for an employee attending a three-day conference in Fresno, CA. Here's how your per diem calculation would look:

• Accommodation: $124
• Breakfast: $16
• Lunch: $17
• Dinner: $31
• Incidental expenses (fees, tip, etc.): $5
• First and last day of trip: $51.75

In this case, your per day calculation would be as follows:

(Maximum Accommodation Total) + (Full Day M&IE) + (1st & Last Day of Trip)

($124 x 2) + ($16 + $17 + $31 + $5) + ($51.75 x 2) = $420.50 total per day

You can also use GSA's  per diem calculator to find federal rates  .

Alternatively, you can pay one flat rate per day for all high-cost locations and a separate daily flat rate for all low-cost locations (what the IRS   calls the “ high-low method ”).

How is per diem tax levied?

In some cases, per diem payments   count as the employee's taxable wages . Applicable situations include:

• The employee does not file an expense report with his or her employer within 60 days (if the employer requires expense reports).
• The employee filed an expense report, but it did not include the date, time, place, amount, and business purpose of the expense.
• The employer pays a fixed amount for business expenses and does not require an expense report.
• Employer per diem payments are higher than the standard federal rate.

Is per diem allowance considered income?

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

Can you waive per diem allowance?

 Employees can  only cut per diem pay under very specific circumstances . In contrast, businesses can generally waive per diem pay, though a  50% limit  applies to meals.

Do you report per diem allowances on a W-2?

Employers  must report per diem payments as taxable wages on the employee's  W-2 form only in the following cases:

• Your employee did not return the money left after his business trip.
• Your per diem allowance is higher than the standard federal rate.

For more information,   see IRS Publication 535, Chapter 11 .