What Does Per Diem Mean?

A per diem, from the Latin for “by the day,” is a daily allowance paid to an employee to cover costs incurred while on a business trip. Covered business expenses typically include accommodation, food, and incidental expenses such as f♒ees and tips foꦕr services.

The term per diem can also refer to a compensation system inꦚ which an employee i🌃s paid per day worked as opposed to receiving a weekly salary.

Many companies and their employees prefer a flat per diem to 🌼the more burdensome requirement for submitting itemized expense accounts.

Understanding Per Diems

Each company sets its own rates for per diem payments, which reimburse employees wh🍰o travel for work.

• Company credit cards: Some companies issue 澳洲幸运5官方开奖结果体彩网:business credit cards to their employees. They use the cards to 澳洲幸运5官方开奖结果体彩网:pay business expenses directly while on the job and without having to pay any expenses out of pocket.
• Full or partial expense coverage: 澳洲幸运5官方开奖结果体彩网:Some companies coverꦿ employee expenses in full, while others set limits for certain expenses, such as lodging, food, and incidentals.
• Fixed amounts: Many corporations provide their employees with a specific fixed daily rate. Employees are expected to cover all or part of their costs with this per diem.

Per diem also refers to a type of pay structure for some workers. They get their wages by the day or the quantity 🃏of work done, rather than being paid a regular salary for a full-time job. These types of workers are usually on temporary or short-term contracts. For example, travel nurses and substitute teachers are paid per diem.

Per Diems for Government Employees

Per diems for federal government employees who tra﷽vel for work are set by the U.S. General Services Administration (GSA). Companies use this federal per diem rate as a guideline for their own per diem policies.

Standard rates for both domestic and international travel go into effect on October 1st of each year. The standard rate applies to approximately 2,600 U.S. counties. Nonstandard, location-specific rates apply to about 300 high-cost areas.

Rates set by the government are based on the 澳洲幸运5官方开奖结果体彩网:cost of living in a company’s city. That’s why it sets rates for certain locations higher or lower than the standard rate.

Per Diems Greater Than the Federal Rate

Per diem payments that are above tꦜhe standard government rates require the employee to pay tax on the excess amount. They may opt to return any excess amount above the government rate to the company.

The excess payout is included in Box 12 of Form W-2. Failure to file a business expense report with the employer within 60 days generally results in a tax on the full per diem 澳洲幸运5官方开奖结果体彩网:disbursement.

Per Diems Equal to the Federal Rate

If the per diem is equal to or less than the federal per diem rate, it isn't considered part of an employee’s wages and isn’t taxable. However, employees must submit a business expense report to their employer to substantiate their expenses.

The required report must be submitted to the employer within 60 days of the conclusion of the trip and include the following information:

• Business purpose of the expense
• Date, time, place, and amount of the expense
• Receipts for lodging
• Receipts for out-of-pocket expenses.

It’s not necessary for employees to submit meal and incidental receipts if they receive a per diem, though the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) requires lodging receipts.

Nontaxable payments appear separately from 澳洲幸运5官方开奖结果体彩网:taxable income on Form W-2.

Per Diems for Self-Employed People

Self-employed individuals can only use a per diem for the cost of meals. Like other employees, self-employed persons must keep a record of expense reports that substantiate the date, location, and purpose of the business trip. Receipts may also be required in some cases. It’s still a good idea to keep them, just in case.

Per Diem Rates for 2025

As mentioned previously, new per diem ra🌠tes are set by the GSA every year and are released on October 1st.

For 2025 the standard lodging rate increased from 2024’s $107 to $110. Current nonstandard areas' per diem rates, which apply to about 300 areas and are typically higher than the standard rate, are at or above 2025 rates for lodging.

Rates for the meals and incidental expenses (M&IE) per diem rose from $59 to $68. The M&IE rate tiers for non-standard areas increased to $68-$92.

Types of Per Diem Payments

Every company handles per diem payments differently. They may issue credit cards, cover full or partial expenses, or offer fixed daily rates. They may require employees to cover expenses out of pocket and then request reimbursement. Some companies pay ♑the per diem by check as an indication that it is separate from the employee’s income.

Per diem payments may cover business expenses fully or partially. Companies may use a per diem rate for lodging and meals or a per diem rate to cover meals only. A partial per diem, for ex🔜ample, may provide funds to cover meals only, while lodging expenses and 🌌incidentals are to be paid out of pocket.

Fixed Rates

A business that implements a fixed per diem compensation structure usually pays employees a fixed amount per dℱay. For example, a per diem payment for an information technology (IT) consultant working for the week in another city could be $200 per day: $100 for accommodations, $50 for food, and $50 for incidental costs.

Incidental expenses are costs that are not specifically identified but are at the discretion of employees. They may include the ♉costs of laundry ser🏅vice, internet use, room service, tips, and more.

If an employee uses a personal car on a business trip, they will be reimbursed according to the IRS mileage reimbursement rate. This is an optional rate used to calculate the 澳洲幸运5官方开奖结果体彩网:deductible costs of operating a vehicle for business purposes. For 2025, the rate is 70 cents per mile, up 3 cents from 2024.

Out-of-Pocket Expenses

Whe𒈔n employees are required to pay for their expenses themselves, compani♌es usually require them to submit claims. If claims are approved for such out-of-pocket expenses, firms then reimburse their employees.

This met💝hod is more time-consuming than a per diem, as it requires staff to review claims and receipts, approve or decline reimbursement requests, and issue payments to employees.

Benefits of Per Diem Payments

Companies and employees 🎃can 🌜benefit from per diem allowances.

• Per diems can help companies budget future expenses more accurately.
• Per diems reduce or eliminate the need for reviewing and managing receipts.
• Per diems reduce paperwork to a minimum for both companies and employees.
• They streamline the tax-deduction process for businesses when used for travel.
• They ensure that employees don’t get taxed on allowances that serve as reimbursements.
• Employees can keep excess amounts of per diems that they don’t spend (although they will owe tax on that excess).

The Bottom Line

A per diem is a daily allowance given to employees by a company to pay for certain expenses while traveling for business. These expenses include lodging, meals, and incidentals. Companies will sometimes issue a credit card to emಞployees to pay their per diem expenses.

A company’s per diem rate is often the same as that set by the GSA. This is because a higher company per diem rate would require the employee to pay ꦍtax on the amount that exceeds the government rate (unless they return it to the cওompany). Per diems can be an efficient and effective way for companies and employees to manage travel expenses.