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What Per Diem Means, How Much You Get & How It’s Taxed

All your per diem FAQs answered

What Per Diem Means, How Much You Get & How It’s Taxed

What does per diem mean?

Per diem, meaning “per day” in Latin, refers to the money an employer allocates to an employee each day. 

In the workplace, there are two uses for this term:

  1. The money allocated for each day of an employee’s travel. According to the IRS: “Per diem is the allowance for lodging (excluding taxes), meals, and incidental expenses. This allowance is in lieu of paying their actual travel expenses.”

  2. Per diem can also refer to a method of wage payment. In other words, your employer pays you by the day rather than hourly or by salary, etc. This usage is less common.

In this article, we’ll discuss per diem as it pertains to travel expenses.

What does per diem cover?

Per diem generally covers lodging, meals, room service, laundry / dry cleaning, ground transport (like cab fare), meals, and incidentals (like tips for bellhops and servers). Sometimes, a per diem will cover only meals and incidentals, but this is ultimately up to your employer.

As soon as you find out you’ll be traveling for work, have a chat with your manager or with human resources to find out what your employer’s per diem covers. Everyone does it a little differently, and some companies even will have limits by category—$20 for lunch and $40 for dinner, for example.

Read more: How to Dress Professionally While Traveling

Is my employer required to provide per diem?

No. Your employer is not required to provide per diem. 

“The employer is not generally required to reimburse an employee for any expense, but the employee is not obligated to spend their money for the company either,” CPA Christian Brim says. “Some businesses don’t reimburse any expenses, but they are the exception. 

What are the current per diem rates?

Every fiscal year, the U.S. government sets new per diem rates, but your employer does have some choice in deciding how much you will receive for each day.

It’s also important to note that, according to the General Services Administration (GSA), per diem for meals and incidental expenses on the first and last day of travel—i.e,, the days you’re actually doing the traveling—is 75 percent of the total daily allowance.

They can pick one of two methods:

1. Employers can base their per diem on the state you’re traveling to, a rate set by the U.S. GSA. For international business travel, per diem rates are set by the State Department. Generally, the higher the cost of living in a city, the higher the per diem rate will be.

A full list of per diem rates by city and state is available on the GSA website. Keep in mind that for some of the bigger cities, like New York City, Las Vegas, and Chicago, the rates can vary by month.

2. Employers can also choose to use the high-low substantiation method. This means your employer allocates one per diem rate for high-cost areas and one per diem rate for every other destination.

For this method, the high-cost area per diem rate that includes lodging, meals, and incidentals is $297, and every other destination is $200. These current rates went into effect October 1, 2019, and are valid through September 30, 2020. High-cost areas include places like New York City and San Francisco.

So, how does per diem work?

How per diem is distributed is up to your employer.

Your employer may provide you with all of your daily allowances before your trip. They may hand you cash or give you access to a company credit card. Other organizations may prefer to reimburse you for your travel expenses after you get back and have filed an expense report. 

Either way, it is important to keep all your receipts and track your spending. This information will be used to generate an expense report, which is required no matter how you received the money.

Expense reports

If you’re given per diem for travel expenses, you have to file an expense report within 60 days.

According to the IRS, expense reports should show “the time, place, and business purpose of [the] employees’ travel.” The same information is required on expense reports for people who work for companies and those who are self-employed.

If you fail to file an expense report within 60 days, or that report does not include the required information, the per diem becomes taxable to you, the employee. Additionally, if you fail to file a report, your employer may require you to cover the cost of your travel expenses or refuse to reimburse you.

Read more: 12 Aptitude Tests to Further Your Career

Is per diem taxable?

It depends.

It is taxable to the employee when...

  1. Your employer allows you to keep whatever amount you don’t spend from your per diem allowance, or they knowingly pay more than the federal per diem rate. The amount over the IRS rate becomes taxable to you.

  2. Per diem is also taxable to the employee if you fail to file an expense report to your employer within 60 days or if you fail to include “the date, time, place, amount and business purpose of the expense” on the report.

It is not taxable to the employee when...

  • The per diem amount is less than or equal to the federal per diem rate and you accurately log how much of your per diem you spent by submitting an expense report (i.e., you’re not keeping the rest).

One final (and important) note

Always keep your receipts. 

Not only do some employers require that you include receipts with your expense report, this will have all of the critical information you need in order to avoid being taxed on your per diem.

Keep them in your wallet or bring an envelope with you as you travel and keep all receipts safely inside. And if you tend to misplace things, take photos of all receipts as you get them (in addition to keeping paper copies).

Read more: 11 Traveling Jobs & How to Get Them

About our source

Christian Brim attended the University of Oklahoma and is licensed as a Certified Public Accountant. Additionally, Brim has the Certified Management Accountant certification and is accredited in Business Valuation with the American Institute of Certified Public Accountants. 

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