The Per Diem allowance allows the employees or self-employed to retain their business travel expenses. People who travel for businesses should know the per diem rates to receive the accurate allowance based on deductible expenses. The article covers everything you should learn about the IRS Per Diem rate and your Per Diem allowance calculation.
IRS Per Diem Rates 2025
.The Per Diem is an allowance that the IRS pays to employees or employers when they travel for business expenses, it is the amount in place of their actual travel expenses.
People who travel for business should know about Per Diem rates as it eliminates the need to report every expense. The standard Per Diem allowance includes the following travel expenses that taxpayers can obtain for their necessary and ordinary business travel:
- Lodging
- Meals and Incidentals
The IRS also has special per diem rates for high-cost US areas, but first, let’s see the standard per diem rates for the continental United States, which has 48 contiguous States and the District of Columbia. Here are the standard per diem rates for 2025:
- Maximum rates for lodging is $110
- Maximum M&IE per diem rate is $68
So, the standard rate for people traveling to Continental US areas is increased for lodging for 2025 from $107 to $110 and for M&IE from $58 to $68. The employees should understand the per diem rate varies as companies may decide their own rates to incur the business trip expenses.
Locations Moved to Standard CONUS category for Per Diem Rates 2025
For FY2025, the Non-Standard Areas (NSAs) per diem rates are higher than the regular rates. However, the IRS has made some changes in the areas, as for 2025, the 2024 NSAs were moved to the regular CONUS category, meaning they will receive the allowance based on the standard rate. Here the locations moved to the CONUS category:
- Ft. Wayne, IN
- Mentor, OH
- Waco, TX
- Canton, OH
- Warwick, RI/East Greenwich
- Wisconsin Dells, WI
IRS Special Per Diem Rates 2025
As we have mentioned, the IRS has special per diem rates for traveling to high-cost localities. IRS uses the high-low Substantiation method to calculate per diem rates for such business travel. According to the IRS notice, the Special per diem rates for the year 2025 traveling to high-cost localities:
- The high-cost locality annual rates are $319, where $225 is the low rate paid for meals.
- The per diem rate for M&IE is $86 for travel to the high-cost locality.
The meal and Incidental Per Diem rates including business travel expenses are:
- Room Service
- All meals
- Fees and tips paid for the services to waiters, luggage handlers, or others.
- Laundry, dry cleaning, and cloth ironing
The per diem rates may vary based on location, so the employees should check the rates for the areas or locality where they spend the night. The employers pay ¾ of the standard rate for the first and last day of stay and employee travel.
The rates for lodging and M&IE can be combined based on the location they are traveling from. The per diem rate for 2025 is effective for travel happening after or on 01 October 2024 or traveling away from on or after 01 October 2024.
Localities included on High-cost Locality for Per Diem rates 2025
As per the IRS notice, the US Government Services Administration has added to the list of high-cost localities that every employee who travels frequently should know, such as:
- Burlington, Vermont
- Mammoth Lakes, California
- South Lake Tahoe, California
- Los Angeles, California
- Palm Springs, California
- Boise, Idaho
- Bend, Oregon
- Coeur d’Alene, Idaho
What should you include in the Business expense report?
The employee would need to file the business travel expense report to the employer within 60 days of their traveling. If the employer does not report the expenses timely, the allowance will become taxable to the employee.
The employees should include the following information in the report to ensure their business expenses:
- You should include the business travel purpose
- You should mention the place and date from traveling days to the last day of the trip
- You should include the receipt of the lodging when you use the meals-only per diem rates.
Is the Per Diem amount taxable?
According to the IRS guidelines, if you meet the following conditions, the Per Diem allowance will be taxable for the employees:
- When you do not report the Business travel expense to the employer within 60 days
- When per diem rates are paid more than the standard federal rate decided for the per diem rates
- When you filed the business expense report which does not include the accurate date, time, amount, place, and purpose of the trip.
- If the employer already provides a flat amount to the employee for business travel,the employee does not need to submit such a report.
If your payment meets the above conditions, your payment will be taxable under the IRS code as the payment will be considered as wages or salary. The employers may deduct 50% of your per diem M&IE spending, the lodging payment is also deductible when they come under the per diem limits.
The self-employed individuals should know the per diem rates for them are different as they only include meals and incidental expenses but can only obtain 50% of the cost.
The rates for 2025 have been finalized by the US General Service Administration, the employees should understand the per diem rates to retain their business trip expenses from the employer, especially those who travel frequently.
