Managing business travel expenses can be a logistical challenge for employers and employees alike. The IRS’s high-low per diem method offers a simplified, compliant alternative to tracking every receipt for meals, lodging, and incidentals. With the release of IRS Notice 2025-54, the updated per diem rates are now effective from October 1, 2025, through September 30, 2026, providing clarity and consistency for travel reimbursements.
What Is the High-Low Per Diem Method?
The per diem method allows businesses to reimburse employees using fixed daily rates based on travel destination costs—categorized as either high-cost or low-cost areas. Instead of submitting itemized receipts, employees only need to document the time, location, and business purpose of their trip.
As long as reimbursements do not exceed IRS-set limits, they are non-taxable and exempt from income and payroll tax withholding. This method is especially beneficial for frequent travelers and companies seeking to reduce administrative overhead.
2025–2026 IRS High-Low Per Diem Rates
Effective for travel on or after October 1, 2025:
- High-Cost Areas: $319 per day
- Lodging: $233
- Meals & Incidentals (M&IE): $86
- Low-Cost Areas: $225 per day
- Lodging: $151
- M&IE: $74
These rates apply to travel within the continental United States (CONUS). For trips that span the transition period, employers must continue using the same reimbursement method applied during the first nine months of 2025.
Additional Guidelines and Exceptions
- Partial Reimbursements: If lodging is provided by the employer, employees may receive per diems for M&IE only.
- Incidental Expenses Only: A flat rate of $5 per day applies when no meal costs are incurred.
- Ownership Restrictions: Per diem payments cannot be made to individuals owning 10% or more of the business.
- Seasonal High-Cost Designations: Some cities, such as New York City and Chicago, qualify as high-cost only during specific months.
Why Switch to Per Diem in 2026?
As the new year approaches, businesses should consider transitioning from actual expense reimbursement to the per diem method. Benefits include:
- Simplified recordkeeping
- Faster processing
- IRS compliance
- Reduced audit risk
Consult a tax professional to determine the best approach for your organization and ensure proper implementation of the high-low per diem method.