How to Calculate Per Diem Pay for Business Travel

Per diem pay is a daily allowance provided to employees to cover meals and incidental expenses (M&IE) incurred during business travel. This allowance simplifies expense reporting for both employees and employers, eliminating the need to track and submit numerous small receipts. It serves as a standardized method to manage travel-related costs, making it a common practice across various industries.

Determining Per Diem Rates

Per diem rates are not uniform and vary based on travel destination and employer policies. The U.S. General Services Administration (GSA) is the primary source for rates within the continental United States (CONUS). The GSA establishes annual per diem rates that federal agencies use to reimburse their employees for subsistence expenses incurred during official travel.

These federal rates are often adopted by private employers as a benchmark. You can find these rates on the GSA website by searching for specific locations, typically by city or county within a state. If a city or county is not listed, the standard CONUS rate applies. For travel outside the continental U.S., the Department of Defense (DoD) sets rates for Alaska, Hawaii, and U.S. territories, while the Department of State establishes rates for foreign areas.

Many companies also establish their own internal per diem rates, which may align with GSA rates or be adjusted based on company policies, industry standards, or collective bargaining agreements. Employees typically access this information through their company’s human resources policy, travel department guidelines, or employee handbook. Pre-negotiated rates may also exist in specialized industries or under certain contracts.

Identifying Covered Expenses

Per diem allowances cover specific categories of expenses incurred during business travel. These typically include meals (breakfast, lunch, and dinner) and incidental expenses, which are minor costs associated with travel.

Incidental expenses include fees and tips for service providers like porters, baggage carriers, and hotel staff. Other covered incidentals are laundry, dry cleaning services, and personal phone calls made during the trip. This category is designed to cover small, miscellaneous costs that arise while traveling for work.

Per diem generally does not cover all travel-related expenses. Lodging costs are often reimbursed separately based on actual expenses, though some per diem rates may combine lodging with meals and incidentals. Airfare, rental cars, and ground transportation are typically handled as separate reimbursements and are not included in the per diem allowance.

Calculating Your Per Diem Amount

Calculating your per diem amount involves applying established rates to your travel days. For each full day of business travel, multiply the applicable per diem rate for your location by the number of full travel days. This provides a straightforward calculation for the bulk of your trip.

Special rules apply to partial travel days, specifically the first and last day of your trip. For these days, a reduced rate is typically applied, regardless of the exact time of departure or arrival. The Internal Revenue Service (IRS) commonly allows for 75% of the full Meals and Incidental Expenses (M&IE) rate for the first and last day of travel. This adjustment accounts for expenses not incurred on partial travel days.

When business travel involves multiple locations with different per diem rates, apply the rate for the area where you spend the night. If you stay in various cities on different days, use the per diem rate corresponding to each overnight stay. This ensures that the reimbursement reflects the cost of living in each particular location.

For example, imagine a trip where the per diem is $60 per day for meals and incidentals. If you travel from Monday to Friday, the first and last days (Monday and Friday) would each be calculated at 75% of the rate, which is $45 ($60 x 0.75). The full days (Tuesday, Wednesday, Thursday) would each be calculated at the full $60 rate. Your total per diem for this trip would be $45 (Monday) + $60 (Tuesday) + $60 (Wednesday) + $60 (Thursday) + $45 (Friday), totaling $270.

Per Diem and Your Paycheck

How per diem payments affect your paycheck depends on whether your employer operates an “accountable plan” or a “non-accountable plan” for expense reimbursements. Under an accountable plan, common among employers, per diem payments are generally not considered taxable income to the employee. This tax-free treatment applies if the amount does not exceed the federal per diem rate, expenses have a legitimate business purpose, and are substantiated with an expense report within a reasonable timeframe, typically 60 days.

Per diem payments can become taxable income under certain circumstances. If the per diem amount paid by the employer exceeds the federal per diem rate, the excess portion is taxable and included in the employee’s taxable wages, reported in Box 1 of Form W-2. If payment is made under a “non-accountable plan,” where there is no requirement for substantiation or return of excess funds, the entire per diem amount becomes taxable to the employee.

On pay stubs, non-taxable per diem amounts may appear as a separate line item or might not be explicitly shown as taxable income. However, any portion deemed taxable will be combined with your regular wages for tax purposes. While employees generally cannot deduct unreimbursed employee business expenses due to tax law changes through 2025, exceptions exist for certain professions, such as armed forces reservists or qualified performing artists.