Per diem: What it means, 2027 rates, and tax rules

A 3-day, 2-night trip to a standard-rate U.S. city now comes with a federal per diem allowance of up to $396. Pay an employee more than the federal rate without asking for the excess back, and that extra amount becomes taxable wages.

New GSA rates took effect on October 1, 2026, so travel budgets built on last year's numbers are already out of date. Federal per diem rules decide how much you can pay, what the allowance covers, and when payments stay tax-free.

Per diem is a Latin phrase meaning "per day." In business, it refers to a daily allowance employers provide employees to cover travel-related expenses like lodging, meals, and incidentals. It also describes a type of as-needed employment where workers are hired on a day-to-day basis.

Understanding both definitions matters if you manage travel budgets or flexible staffing, because the rules for rates, taxes, and compliance differ depending on which one applies.

What is per diem?

Per diem is a daily stipend companies provide employees to cover travel-related expenses, including lodging, meals, and incidental expenses.

Businesses typically offer per diem on top of reimbursed transportation costs like airfare. Many companies, government agencies, and contractors use per diem as a simpler alternative to a traditional expense management process because it doesn't require employees to retain and submit receipts for every travel expense.

Per diem work

Per diem work is a similar term, but it refers to employees hired on an as-needed, day-to-day basis rather than a travel allowance. This type of arrangement is common in industries like healthcare, education, and hospitality, where staffing needs fluctuate daily.

Per diem workers often earn a higher rate in exchange for fewer or no benefits, such as health insurance, paid time off, or retirement contributions, though this varies by employer. Unlike standard part-time employees who have a set schedule, per diem employees have no guaranteed hours and are called in only when the employer needs additional coverage.

In hospitals, per diem staff, often nurses, RNs, or CNAs, pick up shifts as needed to cover scheduling gaps. If you rely on this model, you should understand per diem employee rights before setting pay and scheduling rules.

Per diem vs. actual expense reimbursement

Most companies choose one of two approaches to manage employee travel costs: per diem or actual expense reimbursement.

What does per diem cover?

Per diem is broken down into two categories: meals and incidental expenses (M&IE) and lodging.

Meals and incidental expenses (M&IE)

The meal per diem covers food and beverage costs for breakfast, lunch, and dinner. Incidental expenses include other travel costs, such as fees and tips for porters, baggage carriers, and hotel staff. The M&IE rate also includes taxes and gratuities.

M&IE is the part of per diem most employers pay as a flat allowance, and the federal standard M&IE rate for FY2027 is $68 a day.

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. Note that lodging taxes aren't included in the per diem rate. Instead, lodging taxes are reimbursable as a miscellaneous employee expense.

How does per diem work?

Any employee who incurs business expenses while traveling is eligible for a per diem allowance. As a company policy, you can choose to offer per diem dollars in advance or reimburse employees after submitting an expense report. Unlike the actual expenses method, where employees save receipts and get reimbursed for each individual cost, per diem offers a flat daily rate.

The IRS requires your business to keep expense reports that show the time, place, and business purpose for per diem expenses. However, employees don't need to submit receipts, which makes travel expense management easier. A per diem at or below the federal rate proves the amount of the expense, but employees still document the trip's time, place, and business purpose.

Under federal travel rules, the first and last days of a trip get 75% of the M&IE rate. Private employers can use this method or any other method they apply consistently.

Many businesses and government agencies set their own rates, though it's common to use the federal per diem rates established by the General Services Administration (GSA) as a benchmark.

Per diem rates for 2027

The U.S. General Services Administration establishes daily per diem rates for the continental United States. These official rates are critical for compliance because exceeding them can create taxable income for employees. The daily per diem rate may vary depending on the cost of living in a particular location.

As such, there are two types of per diem rates:

• Standard per diem rate: The FY2027 standard CONUS per diem rate is $181 a day: $113 for lodging and $68 for meals and incidental expenses. It applies to travel from October 1, 2026, through September 30, 2027.
• Non-standard areas: For FY2027, 295 locations have non-standard rates that are higher than the standard rate. For example, Los Angeles has a higher rate than the standard rate.

Here's how the standard rate changed from last fiscal year, according to GSA's FY2027 per diem bulletin:

Some per diem rates are adjusted seasonally. For example, New York City's lodging rate rises in the fall, when business travel and tourism peak. Per diem rates are updated annually each October 1 and remain in effect through September 30 of the following year.

Tip: GSA per diem rates reset every October 1. Check for updated rates before approving travel budgets for the new fiscal year.

How to look up per diem rates

Using official per diem rates is essential for compliance. If you reimburse employees more than the federal limit, the excess must be reported as taxable income. That's why most organizations rely on official government sources when setting allowances.

The three main sources are:

• U.S. General Services Administration (GSA): Establishes per diem rates for the continental U.S. (CONUS)
• Department of Defense (DoD): Sets rates for Alaska, Hawaii, Puerto Rico, and other U.S. territories and possessions
• U.S. State Department: Publishes per diem rates for international travel

Rates differ by location, season, and agency. The IRS also allows employers to use the "high-low method," which sets one rate for high-cost locations and another for all other areas, making administration easier. For travel from October 1, 2026, through September 30, 2027, the high-low rates in IRS Notice 2026-60 are $329 a day for high-cost localities and $230 for everywhere else in the continental U.S.

How to search GSA per diem rates

To look up official GSA rates:

1. Visit the GSA per diem search tool
2. Enter a city or ZIP code where your employees will travel
3. Review the results, which break out lodging and M&IE rates separately

The GSA updates rates every fiscal year (October 1 to September 30). Seasonal adjustments may also apply. For example, ski destinations often have higher rates in winter, while major metros fluctuate with tourism and business travel demand.

How to find foreign per diem rates

International per diem rates are published by the U.S. State Department. You can search them using the State Department's per diem lookup tool.

Foreign rates often differ from domestic GSA rates, particularly for lodging, which can be significantly higher in certain countries. Unlike GSA rates, which are structured around U.S. cost-of-living data, State Department rates reflect conditions in each foreign location.

Using a per diem calculator

Per diem calculators save you the trouble of searching multiple sources. These tools let you input a destination, travel dates, and type of rate (domestic or foreign) to get an instant daily allowance estimate.

Ramp offers a free per diem calculator to help you estimate daily travel allowances by destination.

How to apply per diem rates

Once you know the rates, you can create a per diem policy using either the fixed-rate method or the actual (out-of-pocket) expenses method.

Under the fixed-rate method, employees receive a daily allowance equal to the per diem rate and use that allowance to pay for travel expenses. It works best when you have frequent travelers and want to minimize administrative overhead.

Under the actual expense method, employees cover travel costs out of pocket and submit an expense report, and your company reimburses them up to the per diem limit. It fits when you need detailed visibility into spending or your team travels infrequently to destinations with highly variable costs.

For example, a salesperson traveling to a standard-rate location would have a per diem of up to $181 per day ($113 lodging + $68 M&IE). Under the fixed-rate method, the employee receives the allowance up front. Under the actual expense method, the employee pays for meals and lodging and is reimbursed up to $181 per day. On the first and last day of the trip, the 75% travel-day rule reduces the M&IE portion of that allowance.

With Ramp, you can issue virtual cards with per-merchant limits and time-bound authorizations that match your per diem policy, so a trip card stops working when the trip ends and you don't have to rely on after-the-fact expense reviews.

The fixed-rate method is more straightforward and avoids cash flow issues for frequent travelers, while the actual expense method gives you more visibility into specific spending.

Are per diem payments taxable?

When you reimburse employees for per diem expenses using an accountable plan, the payments aren't considered taxable income to the employee. However, this assumes you don't pay per diem rates higher than the GSA guideline. If you pay more than the GSA rates, the excess is taxable income to the employee.

IRS Publication 463 provides rules on what constitutes an accountable plan:

1. Expenses must have a business connection. That means employees must have paid or incurred deductible expenses in the service of your business.
2. Employees must adequately account for these expenses within a reasonable period of time. Under the IRS safe harbor, that's within 60 days after the expense is paid or incurred.
3. Employees must return any excess reimbursement or allowance within a reasonable period of time. The safe harbor for this is 120 days.

When your team follows these rules, per diem reimbursements are not taxable. However, if you don't follow these accountable plan rules, you must withhold payroll taxes on the reimbursement, and the employee must include the amount in taxable income.

Per diem for self-employed workers and business owners

Per diem rules shift for people who aren't standard employees. IRS Rev. Proc. 2019-48 sets out how self-employed workers and owners can use federal rates:

• Self-employed individuals: You can use the federal M&IE rate to substantiate meal costs, but not lodging. Keep lodging receipts.
• Owner-employees: Owners who hold more than 10% of the company can't use the lodging-inclusive or high-low per diem for their own travel. They substantiate lodging with records.
• Transportation workers: Truck drivers and other transportation workers get special M&IE rates of $80 a day in the continental U.S. and $86 outside it from October 1, 2026, under IRS Notice 2026–60.

These rules interact with your broader tax situation, so check with your tax advisor before relying on per diem for your own travel.

Benefits of using per diem for your business

Calculating rates up front takes more effort, but a per diem system pays off across several dimensions:

• Process efficiencies: Controlling spending requires less time and effort with a per diem system, and it reduces paperwork for both employees and finance teams. Pairing it with automated review helps, too: after Ramp customers implement Policy Agent, only 10–15% of transactions need human judgment.
• Future planning: When you know exactly how much you'll pay for business trips, it can help you forecast a more accurate budget for the future.
• Easier compliance and transparency: Because per diem policies are tied to federal guidelines, they support IRS compliance and give employees clear, predictable daily allowances.
• Faster expense reports: Employees don't need to compile and attach receipts for every transaction, which speeds up the reporting cycle.
• Improved team morale: Employees can choose how to spend per diem dollars based on their preferences, which gives them more autonomy on the road.

Best practices for implementing a per diem policy

Per diem is easier to manage than traditional expense reporting, but rolling out a policy still takes planning. These best practices help:

• Decide on your rates: Choose whether to follow federal GSA rates, use the IRS high-low method, or set custom rates that reflect your company's typical travel patterns. Review your rates every October 1, when federal rates reset.
• Use expense management software: Modern platforms like Ramp let you build spending limits and policy rules into your overall travel and expense (T&E) policy, so you can control spending before it happens. Ramp's Policy Agent catches 7x more out-of-policy spend than rule-based flags.
• Document and communicate your policy: Create a written policy that defines your rates, eligible expenses, and reimbursement process, and make sure employees can easily access it. Clear rules help avoid confusion while traveling.
• Monitor spending and keep records: Compare your team's actual business travel expenses to your travel budget and investigate variances to identify areas for cost savings. Keeping thorough records also ensures compliance with IRS requirements.
• Plan for exceptions: Be ready to adjust for special cases like international travel, seasonal high-cost areas, or extended assignments, where standard rates may not fully cover employee expenses.

How Ramp automates per diem management

Managing business travel expenses is tedious. You're tracking flights booked on personal cards, chasing down hotel receipts weeks after trips, and trying to enforce per diem limits while employees are thousands of miles away.

Ramp's expense management software transforms this into an automated process that starts before your employees leave for their trips. You can issue virtual credit cards with preset spending limits for each trip, automatically enforcing your travel policies without constant oversight.

Instead of waiting weeks to see what employees spent, you get instant notifications for every transaction. Ramp automatically categorizes travel expenses and matches receipts to transactions in real time. Employees snap photos of receipts via text or mobile app, and Ramp codes each expense automatically.

Ramp Travel enforces your policy at booking and reconciles travel expenses automatically, with receipts auto-matched and memos generated for 95%+ of Ramp Travel transactions, so there's no expense report when employees land.

Try an interactive demo and see how Ramp customers save an average of 7.5% a year across all spending.