Understanding IRS Publication 1542: Per diem rates & calculations

IRS Publication 1542 was created to provide instructions on how to manage per diem payments. However, it hasn’t been updated since 2011. Today, the General Services Administration (GSA) determines per diem rates and policies, though other policies are sometimes provided through annual IRS Notices.

“Per diem” is a Latin term that means “by the day” or “for each day.” When an employee travels for business, you can choose to provide a per diem allowance to cover their daily expenses, including meals, lodging, and incidentals. You can pay per diem as an advance or reimburse employees when they submit their expense reports.

This article covers the information that used to be available in IRS Publication 1542, including the expenses covered by per diem, the current per diem rates for travel, methods to apply per diem in your business, and complying with various per diem requirements.

Costs covered with per diem

Per diem covers the cost of meals, incidental expenses, and lodging for business travelers. Employees can pay the following costs using per diem:

• Meals & incidental expenses (M&IE): Meal per diem covers food and beverage costs for breakfast, lunch, and dinner. Per diem for incidentals covers fees and tips for porters, baggage carriers, and hotel staff, as well as miscellaneous expenses like laundry or dry cleaning
• Lodging: Lodging rates pay for both hotel stays and short-term rentals. The per diem rate for lodging is based on average daily rate (ADR) data, which reflects the average cost of lodging in a given area

Per diem rates for 2025

IRS Publication 1542 used to be the source of truth for annual per diem rates, policies, and best practices. Today, that information is provided by the GSA.

The GSA rates apply to the continental United States (CONUS) and are updated annually. While the rates are meant to cover costs for federal employees who travel, many businesses use the GSA’s per diem rates as the de facto standard. Using the GSA rates will help your business comply with IRS per diem requirements.

There are two types of per diem rates:

• Standard per diem rate: The 2025 standard per diem rate is $178, including $110 for lodging and $68 for meals and incidental expenses
• Non-standard areas: For fiscal year 2025, the GSA identifies 296 non-standard areas with higher per diem rates than the standard rate, including high-cost localities like New York and San Francisco

Some per diem rates are adjusted seasonally. For example, the lodging rate for Boston varies from $209 in December of 2024 to $349 in September 2025 as tourism and business travel demand increases over the calendar year.

Applying the per diem rates

You can assign per diem rates for non-standard areas in two ways. Some businesses choose to assign rates by city. However, because there are 296 non-standard areas, assigning rates by specific area is time-consuming.

The high-low substantiation method is a simpler alternative to using rates for each individual city. This method assigns a higher per diem rate to high-cost locations and a lower rate to all other locations. Here are the details:

• The current rates apply from October 1, 2024, to September 30, 2025
• The daily per diem rate for high-cost locations is $319, and the rate for all other locations is $225
• The meals portion of the daily rate is $86 for high-cost locations and $74 for all other locations

IRS.gov publishes an annual list of high-cost locations, with a date range for when high-cost per diems apply. For example, Big Sky, Montana, is a high-cost location from June 1 to September 30 because Big Sky is a popular summer tourist destination.

The high-low rates eliminate the need to manage dozens of different per diem rates. You can apply the high-low method by checking the list of high-cost locations and when the higher rate applies.

Complying with per diem requirements

Under certain circumstances, per diem payments could be considered taxable income for your employees. Here’s how to avoid that:

• Per diem rates: Don’t pay more than the GSA’s recommended maximum per diem rates
• Covered expenses: Employees should only use per diem payments for meals, incidentals, and lodging
• Unused per diem payments: Employees must return unused per diem advances to the employer
• Timely documentation: The IRS requires businesses to keep expense reports that show the time, place, and business purpose for per diem expenses. Employees must account for expenses within 60 days after they were paid or incurred.

When you follow these rules, per diem payments are considered legitimate business expenses and aren’t taxable income to the employee.

How Ramp automates per diem compliance

Managing per diem expenses manually means wrestling with IRS tables, tracking employee travel days, and calculating location-specific rates while ensuring every reimbursement follows federal guidelines. You're stuck cross-referencing GSA rates for different cities, verifying travel dates against receipts, and hoping your calculations match compliance requirements—all while employees wait for reimbursements and auditors scrutinize every detail.

Ramp's expense management software transforms this complex process through intelligent automation that handles per diem compliance for you. The platform automatically applies current GSA per diem rates based on travel destinations and dates, eliminating the need to manually look up rates for each city. When an employee submits travel expenses, Ramp instantly calculates the correct per diem allowance using real-time federal rate tables, ensuring every reimbursement complies with IRS regulations without manual intervention.

The system's automated policy enforcement prevents compliance violations before they occur. You can configure per diem rules that match your company's travel policies, such as requiring receipts for expenses exceeding 75% of the federal per diem rate or automatically flagging international travel for additional review. Ramp tracks partial travel days and automatically prorates per diem amounts, handling the complex calculations that typically consume hours of finance team time.

Real-time reporting gives you complete visibility into per diem spending patterns and compliance status. Ramp's dashboards show per diem expenses by employee, department, and location, making it easy to identify trends and ensure consistent policy application. The platform maintains detailed audit trails for every per diem calculation and reimbursement, providing the documentation you need for tax compliance and internal audits. This automation doesn't just save time—it eliminates costly compliance errors while getting employees reimbursed faster.

Simplify travel expense management with Ramp

Beyond per diem automation, Ramp Travel streamlines your entire business travel program. Book flights and hotels directly through the platform while enforcing travel policies and capturing negotiated corporate rates.

The integrated experience means travel expenses flow seamlessly into your expense reports with pre-populated trip details and automatic receipt matching. You can even apply custom multipliers to GSA rates, giving employees extra flexibility for high-cost destinations while maintaining spend control.

Try an interactive demo and see why Ramp customers save an average of 5% a year across all spending.