What Are the IRS High Cost Localities for Per Diem?
Learn how federal guidelines for business travel expenses account for cost variations by location, simplifying tax deductions and reimbursements.
An IRS high-cost locality is a specific geographic area within the continental United States that the federal government has identified as having significantly higher living costs than the national average. This designation is primarily concerned with the expenses related to business travel, specifically for lodging, meals, and incidental purchases. The classification exists to ensure that individuals traveling for work to more expensive cities or regions can receive reimbursements or claim deductions that accurately reflect the higher costs they will encounter.
This system allows for a standardized approach to substantiating business travel expenses without requiring the detailed tracking of every single dollar spent. By designating certain areas as high-cost, the government acknowledges that a one-size-fits-all approach to travel reimbursement would be inequitable.
The Per Diem Rate System
A per diem, meaning “for each day,” is a fixed daily allowance that an organization provides to an individual to cover expenses incurred during business-related travel. This method simplifies expense reporting, as it allows for a set payment instead of collecting and processing numerous individual receipts for actual costs. The Internal Revenue Service (IRS) provides rules for using these rates to substantiate business expenses for tax purposes.
Per diem rates are composed of two primary components. The first is for lodging, which covers the cost of accommodation for each night of business travel. The second component is for meals and incidental expenses (M&IE), which is intended to cover the cost of food, beverages, and tips for service staff. The federal government establishes a standard per diem rate that applies to most locations within the continental U.S. (CONUS).
To account for economic variations across the country, the government also establishes specific, higher per diem rates for designated high-cost localities. These are areas where the cost of lodging and meals is demonstrably more expensive than the standard rate would adequately cover. This dual system ensures that reimbursement amounts are more closely aligned with the actual costs a business traveler is likely to face.
Locating Official Rates and Localities
The per diem rates used for federal tax purposes are established and published by the U.S. General Services Administration (GSA). The IRS formally adopts these GSA rates, providing rules for using a per diem rate to substantiate business travel expenses. Individuals and businesses can find the official, current rates for any location within the continental United States by visiting the GSA’s official website.
To find a specific rate, you can navigate to the GSA’s per diem lookup tool, which allows users to search by city, state, or zip code. Once a location is entered, the system will display a table showing the applicable rates for that area. If a specific city is not listed, the rate for the county in which it is located applies.
The results table breaks down the per diem rate into its core components, showing a maximum daily rate for lodging and a separate fixed rate for M&IE. This allows travelers and their employers to easily identify the government-sanctioned amounts for substantiating expenses.
Using Per Diem Rates for Business Travel
For employees, employers can use the GSA rates to provide tax-free reimbursements for lodging, meals, and incidental costs. As long as the reimbursement amount does not exceed the federal per diem rate for that locality, and the employee substantiates the time, place, and business purpose of the travel, the reimbursement is not considered taxable income.
Self-employed individuals can also use the per diem method to calculate their business travel expense deductions. A sole proprietor can use the federal M&IE rate for the location of travel to figure their deduction for meal costs. They must still substantiate the actual cost of lodging separately.
A specific rule applies to the first and last days of business travel. On these days, the taxpayer can only claim 75% of the standard M&IE rate for the locality. This adjustment accounts for the fact that a full day of meal expenses is typically not incurred on travel days.
The High-Low Substantiation Method
As an alternative to using the specific GSA per diem rates for every travel location, the IRS provides a simplified option known as the high-low substantiation method. This method is primarily available for employers to use when reimbursing employees for business travel within CONUS. It streamlines the process by establishing just two per diem rates: a single high rate for all designated high-cost localities and a single low rate for all other localities.
For the period from October 1, 2024, to September 30, 2025, the IRS has set these rates. The rate for travel to any high-cost locality is $319, while the rate for all other locations is $225. Of these amounts, the portion treated as paid for meals is $86 for high-cost areas and $74 for all other areas. This method allows an employer to avoid looking up the specific rate for every city an employee visits.
The IRS publishes an annual notice that lists all the localities qualifying for the “high” rate. This list is updated to reflect economic changes, with some locations being added and others removed. For example, for the 2024-2025 period, new high-cost localities include Los Angeles, California, and Boise, Idaho. This simplified method is not available for self-employed individuals to use for deducting their own travel expenses.