Understanding Per Diem Expenses: A Comprehensive Breakdown for Businesses

Depending on who you ask, traveling for networking events and business conventions can be one of the highlights of corporate life. As an employee, you get to meet interesting people, get insights from other experts in your industry, explore a new city, and eat and drink along the way. If you’re a finance manager or business owner overseeing this team, you can enjoy the same perks – but you’re also in charge of making sure it’s all paid for and tracked.

Today, companies often handle this responsibility with the per diem system. Per diems, also called per diem payments, are daily allowances that cover travel costs without requiring employees to track every receipt. When used correctly, they can save you time and keep travel costs predictable while giving your team a bit of financial freedom. However, there are specific per diem rules established by the IRS that should be understood before you build a travel expense policy.

If you have experience booking flights and lodging for your team, but you’ve never been sure how to manage their individual spending, you’re in the right place. This article covers what per diem expenses are, how federal per diem rates work, the tax rules that apply, and the practices that make a per diem policy work well. As we break down travel expense management, we’ll also examine Slash, a financial platform built to make it easy to track company spending.¹ Slash users can issue unlimited virtual corporate cards with configured limits and restrictions, making travel expenses simple to manage and record.

What Are Per Diem Expenses?

Per diem comes from the Latin phrase meaning "per day." In business travel, per diem is a predetermined daily allowance that covers some combination of meals, lodging, and incidental expenses without the need for receipts. Meals and lodging apply to restaurants and hotels, while incidentals can include things like tips for hospitality staff, dry cleaning, and room service charges. A per diem expense, therefore, is any amount of money spent on these things that’s under the daily limit. It’s important to note that per diem actually doesn’t cover transportation to and from the destination. Airfare, mileage, and rental cars are typically handled separately.

Unlike typical company spending, per diem payments are usually given directly to the employee ahead of time via check or direct deposit. They can also be reimbursed after the fact, but that requires an expense report that isn’t necessary when pre-paid up front. Either way, these payments are a large portion of the $310+ billion spent on U.S. business travel each year.

Per diem is designed to simplify the reimbursement cycle on both sides. Employees can know their allowance in advance, which means they don’t have to worry about whether a certain purchase will be approved. From there, finance teams skip the task of processing receipts and can forecast travel costs more accurately.

The alternative is actual expense reimbursement, where employees submit receipts for everything they spent. This approach is a bit more accurate, since each individual purchase is logged, but it’s a lot more labor-intensive. The per diem system may not allow line-by-line spend visibility, but it’s quick and efficient.

You might have one more question: what counts as business travel? The IRS considers business travel to be any trip that requires an employee to be away from their home longer than an ordinary workday and necessitates sleep or rest. That threshold is the trigger for per diem eligibility. Day trips that don't require an overnight stay, even if they include a long drive or short flight, generally don't qualify.

Types of Travel Allowances

As you start planning a per diem policy, you’ll have to choose between using fixed and variable allowances. A fixed allowance gives employees the same daily rate for every travel day, regardless of where they are or what they actually spend. This can be simple to administer, since employees know their rate upfront and the budgeting math is straightforward. The downside is that a single rate rarely fits all situations. A fixed rate tied to a national average may leave some employees short-changed in New York while letting others feel rich in a place like West Virginia.

To combat this, a variable allowance adjusts the daily rate based on the destination, typically by following federal per diem rates by location. This usually produces more accurate reimbursements and is fairer to employees traveling to high-cost cities, but it takes some extra work. The policy needs to reference a rate table, finance leaders need to verify the applicable rate for each trip, and employees generally need to provide the time, place, and business purpose of the expenses.

Federal Per Diem Rates

The federal per diem rate is the benchmark most businesses use when setting their own travel policies. The General Services Administration (GSA) sets federal per diem rates for the continental United States (CONUS) each year. This CONUS distinction is made because, believe it or not, the Department of Defense handles per diem rates for Alaska and Hawaii.

Federal rates are split into two components: lodging, and meals & incidental expenses (M&IE). The lodging component covers the cost of a hotel room, while M&IE component covers breakfast, lunch, dinner, and incidentals like tips and dry cleaning.

For fiscal year 2026, the GSA kept rates unchanged from 2025. The standard CONUS lodging rate is $110 per night, and the standard M&IE rate is $68 per day. Combined, the total standard daily per diem allowance is $178. There are quite a few locations that require elevated rates, including:

San Francisco, CA: M&IE is $100/day, while lodging is $250-$280 a day depending on the time of year
New York City, NY: M&IE is $92/day, lodging is $180-$340
Washington, D.C.: M&IE is $92/day, lodging is $180-$280
Chicago, IL: M&IE is $79/day, lodging is $140-$240
Miami, FL: M&IE is $92/day, lodging is $140-$240
Boston, MA: M&IE is $92/day, lodging is $209-349

Per diem rates can rise due to a high cost of living, but they don’t fall due to a low cost of living. The minimum per diem allowance you’ll get is the standard $110 lodging and $68 M&IE.

The GSA sets rates based on hotel cost surveys and cost-of-living data by location, with annual updates on October 1. Places with expensive lodging costs receive non-standard area designations with elevated rates, while most of the country falls under the standard CONUS rate. All rates are published and searchable by city or zip code on the GSA website. As you set travel budgets for your team, remember to check on the current rates if you haven’t traveled in a while.

Per Diem Tax Implications

In order to let your employees start spending money while traveling, you have to set a per diem policy. From there, the way per diem payments are taxed depends on whether your policy meets the IRS definition of an “accountable plan”. Per diem under an accountable plan generally isn’t taxable income to the employee, while per diem under a non-accountable plan is treated as part of payroll, meaning it’s subject to income tax.

An accountable plan has three requirements:

The per diem must relate to legitimate business travel, meaning the employee must be away from their tax home on a work-related trip
Employees must provide the time, place, and business purpose of the travel within 60 days
Any per diem amounts that exceed actual expenses must be returned to the employer within 120 days

When all three conditions are met and your payments don't exceed federal rates, per diem doesn’t count as income for the employee and taxes don’t apply. If per diem does exceed the federal rate, the excess is taxable. These taxes apply to the payroll period when the payment is made, not when the trip is taken.

Not all companies require their team members to account for the business purpose of travel or return their excess amounts. While this method can be easier, it’s considered a non-accountable plan, and all per diem payments will be treated as taxable wages.

What Employees Need to Know About Tax Reporting

Employees traveling under an accountable plan don't need to report per diem payments as income on their personal tax returns, as long as payments stay within federal rates. If the employer pays above federal rates without withholding taxes on the excess, employees may receive a W-2 with a splash of extra income they weren’t expecting.

The responsibility of tax reporting is partly on the employee. As long as they file an expense report with travel dates, destination, and business purpose within 60 days, per diem will stay out of their taxable income. If they miss that window, it gets mixed in with the rest of their wages.

For employers, per diem payments under an accountable plan are fully deductible as business expenses and don't carry payroll tax obligations. Any amounts above federal rates are deductible as compensation, but they can trigger employer payroll taxes. One more caveat is that per diem allowances spent on food are subject to the standard 50% meal deduction limit for most businesses.

All in all, the per diem system can help both you and your employees. Team members receive non-taxable travel money, and employers get the deduction without having to pay extra payroll taxes.

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Travel Expense Management Best Practices

Per diem rates can be a great framework for setting company budgets while skipping extra taxes. Managing your company’s travel expenses overall, though, can take quite a bit more work. Here are some tips for travel expense management that go beyond minding your CONUS rates:

Set Up a Travel Policy

Before issuing any per diem payments, lay out the rules. A clear travel policy should specify who qualifies for per diem, which expenses are covered vs. reimbursed later, and the daily rates everyone will work with. You should also describe what happens when employees spend more or less than the per diem amount. Physically writing this policy out can be helpful as well, both for the sake of your team’s memory and any potential audits later down the line.

Build Out an Approval Process

It’s best to mark everything with a stamp of approval before your trip rather than afterwards. Pre-travel approval, where managers sign off on the destination, dates, and estimated per diem budget, can prevent out-of-policy spending ahead of time.

Alternatively, some companies work with expense reports submitted after the trip. If this describes your business, it’s wise to require report submissions within 30 days in order to stay far away from the 60 day IRS deadline.

Assign Corporate Cards

Corporate cards let companies embed their per diem policy directly into their team’s payment tools. Rather than advancing cash or waiting for reimbursement requests, employees can spend on a company-issued card that carries the applicable daily limit and spending category rules. For example, Slash allows admins to issue unlimited virtual Slash Visa® Platinum Cards, each with customized permissions and rules. If your team’s traveling to New York City, you can set your Slash Card limits to $92 a day on food and $250 a day for lodging.

While corporate cards are a handy way to mimic per diem payments, in the eyes of the IRS, they’re a separate type of compensation. So, while it’s easy to manage and track your team’s travel expenses with cards, the tax rules we discussed earlier don’t apply.

Use an Expense Management Software

A good expense tracking platform can help manage all the spending around a business trip, not just the per diem rates. Flights booked, tradeshow booths purchased, and per diems sent can all be tracked in real time with a dedicated system. If you use Slash, not only are all card payments centralized on one platform, but they can be synced with accounting solutions like QuickBooks Online, Xero, Sage Intacct, and NetSuite. If and when an employee does make a purchase that needs to be reimbursed, Slash also allows users to upload their receipts directly to an auto-generated SMS or email thread.

How Slash Can Help Your Business Track Travel Expenses

Whether you decide to give your employees per diem payments ahead of time, reimburse them after the fact, or give them corporate cards with custom rules, it all needs to be tracked. Setting the right rates can be straightforward, but it’s not always easy to figure out where, when, and why your team’s spending money while they’re out on the town.

We built Slash to help. Slash is a business banking platform that supports expense management features on the same dashboard that includes working capital financing, invoicing tools, stablecoin payments, and much more.⁴,⁵ If you want to send your employees per diem payments ahead of time, you can transfer the money via ACH, wire, and real-time rails like RTP and FedNow. If you’d prefer to send per diems afterwards, employees can submit expense reports with receipts attached, and managers can approve or reject each report from the Slash dashboard. All approved reimbursements can be paid directly.

All that said, there are other ways to give your team spending privileges outside of per diem payments. With the Slash Visa® Platinum Card, each employee can have their own card configured with specific spending guidelines based on their role and the city they’re traveling to. Along the way, eligible business purchases can earn up to 2% cash back. Additionally, each purchase made with our cards generates a clean transaction record that syncs directly with accounting systems and creates an audit trail.

When you’re not actively traveling, you can also take advantage of the following Slash features:

High-yield treasury: Earn up to 3.84% annualized yield on idle funds with money market investments from BlackRock and Morgan Stanley, managed directly within your Slash account.⁶
Accounting & ERP integrations: Sync transaction data with QuickBooks Online, Xero, NetSuite, or Sage Intacct to streamline reconciliation, reporting, and month-end close.
Native cryptocurrency support: Send and receive USD-pegged stablecoins USDC and USDT across eight supported blockchains for faster, lower-cost global payments.
AI-powered finance: Our platform comes with Twin, a built-in AI agent that can be prompted with natural language to complete complex tasks. Users can ask it to create cards, pay invoices, review your cash flow, and much more.
Global USD: The Slash Global USD Account is designed as an alternative for foreign founders who want access to USD without forming a US entity.³ Balances are backed by Slash’s USDSL stablecoin, which is designed to maintain a one-to-one value with the US dollar.

No matter how your team spends money on their business trips, Slash is built to help you manage it all in one spot.

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Frequently Asked Questions

Do employees keep unused per diem, or do they have to return it?

That depends on the company's policy. Under a fixed per diem arrangement, employers may allow employees to keep any money they don’t spend. However, if the policy requires extra amounts to be returned, employees need to give those funds back to stay within IRS accountable plan rules.

Can self-employed individuals use federal per diem rates?

They can use the federal per diem rate for meal expenses only, not lodging. A self-employed person can use the applicable federal M&IE rate and deduct 50% of that amount as a business expense. However, the IRS doesn’t allow self-employed taxpayers to use the federal lodging rate.

What's the difference between per diem and a travel reimbursement policy?

Per diem gives employees a fixed daily allowance and typically doesn't require itemized receipts for every expense within that limit. A travel reimbursement policy reimburses employees for their actual documented costs, meaning every expense requires a receipt and is reviewed individually. Per diem is simpler to administer and more predictable for budgeting, while actual reimbursement is usually more accurate (though time-consuming).