Pay & FinanceUpdated October 2026. Federal rates below took effect October 1, 2026 and run through September 30, 2027.
Per Diem is NOT a bonus
It's a reimbursement for the cost of working away from home. The IRS has rules about when that money stays out of your taxable income and when it quietly turns into wages.
Most people never look at it until a W-2 shows up thousands of dollars higher than expected.
What It Covers
Per diem is really two separate things, and they do not work the same way.
Your room
Paid at what you actually spent, up to a nightly limit. It's a ceiling, not an allowance.
Limit is $113 and your motel is $89 → you get $89. You don't pocket the difference.
Motel is $130 → you cover the $17 yourself.
It's also per night, not per day. It tracks nights you were actually away, not days you worked.
And if your company books the hotel directly, lodging never touches your check at all — the only per diem you'd see is the food side. Now, if your company does something different like give you a hotel AND per diem then lucky you. Technically, they are breaking the law.
Your Food
Food, plus small stuff like tips and laundry. This one is a flat allowance, no receipts required. Eat cheap and keep the difference. That's legal, and it's yours.
The 2027 numbers
Standard rate (most of the country):
Your room $113 / night Your food $68 / day Total $181 / day
Lodging went up $3 this year. The food rate didn't move.
Things that change this:
295 areas pay more for lodging, and some shift month to month. A resort town in July isn't the same as January. Look up the exact location and month at https://www.gsa.gov/travel/plan-book/per-diem-rates.
First and last travel day pay 75% of the food rate — $51 instead of $68. That's the standard playbook, not your employer shorting you.
Alaska, Hawaii, and the territories run on a different table (Department of Defense, not GSA).
Some employers skip the lookups and use a simpler two-tier system:
Total / day Food portion High-cost city $329/$86 , Everywhere else $230/$74
If your per diem is a flat $230 no matter where they send you, that's why. Both tiers went up this year.
When Per Diem Stays Tax Free
Only if your employer runs what the IRS calls an accountable plan. All three have to be true:
Business connection — the expense relates to work you did for them.
Substantiation — you document the trip: dates, place, business purpose. (Not meal receipts. The trip.)
Return of excess — anything paid beyond what's documented goes back.
Deadlines: expense reports within 60 days, excess returned within 120 days, advances no more than 30 days ahead.
If they pay over the rate, only the extra gets taxed
This is the part most people get backwards, and it's good news.
The federal rate is a safe harbor. Paid at or under it on a proper plan, the whole amount is automatically treated as substantiated — no receipts, nothing added to your W-2.
Go above it and the safe harbor stops at the line. Say the location rate is $181 and they pay $250:
The first $181 stays tax-free.
The $69 spread becomes wages — added to Box 1, with income tax, Social Security, and Medicare withheld.
The base is never at risk. Only the overage.
There is one escape hatch: if you can document that you actually spent the higher amount, the excess can stay tax-free too. But that means real receipts, which defeats the point of a flat allowance. In practice almost nobody does it, and the spread just gets taxed.
Five Ways It Becomes Taxable
Any one of these will do it:
It exceeds the federal rate (just the excess — see above).
No expense report. A flat stipend with no paperwork requirement is taxable from day one, whatever the check stub calls it.
The report is incomplete. A missing date, location, or purpose can void the whole payment.
No overnight stay.
The job stops being temporary.
Local Work: Per Diem With No Overnight Stay
This is the most common one in the trade, and it surprises people.
If you're not sleeping away from home, it isn't tax-free per diem. The test isn't distance or hours. It's whether the trip required you to stop for sleep or rest. An hour-and-a-half drive out, a 16-hour day, and a drive home doesn't qualify no matter how brutal it was. Your tax home is the area you're already working in, so you were never away from it.
That money is taxable wages from dollar one. "Per diem," "travel pay," "local stipend," "subsistence" — the label on the stub doesn't matter.
That doesn't make it a scam. A local stipend is a real benefit and plenty of good contractors pay it. It's just compensation, not a reimbursement. The problem isn't that they're paying it — it's how it's getting reported.
What to check: pull a stub and see whether that money is being withheld on. If it's showing up untaxed on local work, either it gets caught up at year end and your W-2 jumps, or it never gets reported and the exposure is yours. Your employer owes the withholding. You still owe the income tax.
Mileage is the one thing that can stay tax-free locally
If you're driving between job sites during the day, or to temporary sites when you have no fixed reporting location, actual business miles reimbursed under an accountable plan stay out of your income. Straight commuting to a regular yard or shop doesn't count.
The IRS rate moved twice in 2026 — 72.5¢/mile through June 30, then a rare mid-year bump to 76¢/mile from July 1.
Narrower than per diem, but real, and worth asking about if you're doing a lot of local windshield time.
The one-year rule
This is where people get destroyed, and almost nobody sees it coming.
Per diem is only tax-free while you're temporarily away from your tax home. The IRS defines temporary as reasonably expected to last one year or less. Cross that line and the job site becomes your new tax home — you're no longer "away from home," and every per diem dollar after that is taxable wages. Room money included, not just food.
Three things that catch people:
It runs on expectation, not the calendar. Take a job everyone knows is an 18-month rebuild and it's taxable from day one — even if it wraps in ten months.
Extensions end it going forward. Nine-month job, extended at month eight to fourteen months? The first eight months are fine. Everything after is wages.
Nobody can waive it. It's written into the law. Not your employer, not a great CPA. There's no appeal.
Related trap — the "itinerant." Your tax home is where your main work is, not where your family lives. If you never really go home, don't keep a residence, and just chase jobs, the IRS can label you itinerant. An itinerant is never "away from home" — so all per diem is taxable. Keeping a real home base you actually return to is tax protection, not just a family thing.
More on the food side
It's flat money, but it isn't ruleless.
$68 isn't universal. Higher-cost locations sit on higher food tiers ($68, $74, $80, $86, $92), and those shift by location. Check the actual rate.
No receipts still doesn't mean no paperwork. You skip meal receipts, but the trip itself still has to be documented. Miss that and the whole payment gets reclassified — food money included.
Know what "incidentals" actually covers. Tips to hotel staff and laundry. Basically that's it. Gas, tolls, parking, and your phone are not in the $68 — those are separate reimbursements. People assume it's a catch-all and eat costs it was never meant to cover.
If they feed you, it can come out. On storm work especially, when the company provides meals, the food allowance can be reduced accordingly. Worth knowing before you're surprised by a smaller number on a job where you ate three times a day on the company.
You can't write off the shortfall anymore
This changed, and a lot of people haven't caught up.
Before 2018, if your employer paid less than you actually spent, you could deduct the difference. That was suspended — and everyone assumed it would return in 2026. It didn't. The suspension is now permanent.
As a W-2 employee, you cannot deduct unreimbursed work expenses. Not the per diem gap. Not union dues. Not tools.
What that means: the only per diem that helps you is per diem your employer actually pays. There's no safety net at tax time. What's in your contract and what lands on your check is the whole ballgame.
Keep your own record
Whether your employer asks or not, log this for every job:
Dates you left and came back
Which nights you were actually away, and which you went home
City and county (rates are set by locality)
Contractor and job name
Per diem rate paid per day
Whether lodging was paid direct or reimbursed
The expected length of the job when you took it — and any extension
Those last two are the ones nobody keeps and everybody needs. The overnight question decides whether it's tax-free at all. And if the one-year rule ever comes up, what matters is what you reasonably expected — written down at the time beats your memory two years later.
LineVault tracks per diem separately from base and OT, splits taxable from non-taxable, and keeps this job-level record for you.
This is general information, not tax advice. Rates change every October 1. Your tax home, your contract, and your state can change every answer here. Talk to a CPA who understands travel work before making decisions based on this.
Sources: GSA Per Diem Bulletin FTR 27-01 · IRS Notice 2026-60 · IRS Announcement 2026-11 · IRS Publication 463 · IRS Topic No. 511 · Rev. Proc. 2019-48 · IRC §162(a)