Per Diem refers to a daily allowance given to employees to cover expenses incurred while traveling for work. This typically includes meals, lodging, and incidental expenses. Per diem rates are often set by government agencies (like the U.S. General Services Administration (GSA) for federal employees) and vary based on the location and time of year, reflecting local cost-of-living differences. Employers may choose to follow these rates or establish their own.
Per diem payments are generally non-taxable if they do not exceed federal limits and if employees provide documentation of the time, place, and business purpose of the travel. However, any excess over the allowed rate may be considered taxable income.
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Key Facts
- Allowance: Employees receive a set daily rate instead of submitting individual receipts for reimbursement.
- Tax Implications: Non-taxable if within IRS-approved limits and used for business-related travel.
- Variability: Rates can vary by location, especially for high-cost cities.
- Policy: Employers may offer full or partial per diem depending on internal travel policies.
- Documentation: Employees typically must still document the time, place, and business purpose of travel.
1. What does per diem usually cover?
It usually covers meals, lodging, and incidental expenses like tips or transportation during business travel.
2. Is per diem considered taxable income?
Not if it follows IRS guidelines, stays within limits, and is documented correctly.
3. How is the per diem rate determined?
Rates are based on federal guidelines (for example, GSA rates in the U.S.) and may be adjusted by the employer for specific cities or countries.
4. Can employees keep unused per diem money?
Yes, unless the employer requires receipts or reconciliation. If employees spend less than the allowance, they may keep the difference.
5. What’s the difference between per diem and reimbursement?
Per diem gives a flat rate upfront, while reimbursement requires receipts and exact expense reporting after the trip.
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