How Do You Calculate Per Diem Rates?

Per diem refers to a daily allowance for individuals on business travel. This fixed amount simplifies expense tracking for employers and employees by covering lodging, meals, and incidental expenses without requiring detailed receipts. Businesses, government agencies, and individuals commonly use per diem rates, which can also have implications for tax reporting.

Understanding Per Diem Components

A per diem rate covers a traveler’s daily expenditures while on business away from home. The allowance consists of two primary components: lodging and meals and incidental expenses (M&IE). Lodging accounts for accommodation costs, such as hotel stays or other temporary housing.

The M&IE component covers daily living costs beyond accommodation. This includes food, non-alcoholic beverages, and meal-related tips. Incidental expenses also cover fees for services, such as tips given to hotel staff, laundry, or dry cleaning. The per diem is a predetermined allowance, not necessarily an exact reimbursement for every dollar spent. This structure eliminates the need for individuals to collect and submit itemized receipts for each covered expense, simplifying the accounting process.

Locating Official Per Diem Rates

The U.S. General Services Administration (GSA) establishes official per diem rates annually for federal employees traveling within the continental United States. These GSA rates are frequently adopted by the Internal Revenue Service (IRS) for tax purposes, serving as a benchmark for private sector businesses to determine non-taxable employee reimbursements. Individuals can find these official rates on the GSA Per Diem Rates website.

The rates vary significantly based on the travel location, often differing by specific city or county, and can also be subject to seasonal adjustments in certain areas. This means a trip to a major metropolitan area might have a higher per diem rate compared to a less populated region. The GSA distinguishes between “standard” per diem rates, which apply to areas not specifically listed, and “non-standard” or “high-cost” rates designated for specific cities and their surrounding counties. Each listed rate is further broken down into separate amounts for lodging and for meals and incidental expenses.

Calculating Your Per Diem Reimbursement

Calculating your per diem reimbursement involves applying the official rates to your specific travel itinerary. First, determine all travel dates and the specific locations where you will spend each night. This information is important because per diem rates fluctuate based on geographic location and the time of year.

Once your itinerary is clear, retrieve the applicable lodging and M&IE rates for each overnight stay. These rates are available on the GSA Per Diem Rates website for each city and date combination. The daily lodging rate applies for each night you are away from home on business.

The M&IE rate applies for each full day of travel. A special rule applies to the first and last day of travel, where the M&IE rate is often prorated. For example, for both the day you depart and the day you return, the M&IE allowance is commonly calculated at 75% of the full daily M&IE rate. If the full M&IE rate for a location is $60, the prorated amount for the first or last day would be $45.

After calculating the lodging amount for each night and the prorated M&IE for the first and last days, along with the full M&IE for any intervening full days, sum all these daily amounts. This total represents your complete per diem reimbursement for the entire business trip. This ensures accurate calculation based on established federal guidelines.

Employer Per Diem Policies

While federal per diem rates provide a benchmark, employers retain discretion in setting their own per diem policies for employee reimbursements. Businesses are not legally mandated to adopt the exact GSA rates; they may establish higher or lower allowances based on their internal budgets or industry standards. Some companies might even opt to require itemized receipts for all expenses rather than utilizing a per diem system.

For reimbursements to be non-taxable income to the employee, employers often operate under an “accountable plan,” as defined by IRS regulations. Under an accountable plan, per diem reimbursements are not subject to income tax withholding or reporting on an employee’s Form W-2, provided specific criteria are met. These criteria include a business connection for the expense, proper substantiation of the travel (such as dates and locations), and the requirement for employees to return any excess reimbursement not spent.

Employer per diem policies can vary considerably regarding what specific expenses are covered, how travel days are counted, and the internal procedures for submitting reimbursement requests. Some policies might exclude certain expenses, like entertainment, from the per diem allowance, requiring separate expense reporting. Employees should always consult their company’s specific travel and expense policy to understand the applicable rates, documentation requirements, and submission processes.