The IRS released new special per diem rates for travel, effective Oct. 1, 2025. Use the summary below to brief clients and coordinate with payroll and human resources and keep the examples handy for quick reviews during the busy season.

Per diem updates for 2025–2026

Per Notice 2025-54, the special rates used to substantiate ordinary and necessary business travel expenses are updated for travel on or after Oct. 1, 2025. You’ll continue to follow Rev. Proc. 2019-48 to apply per diem rules, including accountable plan substantiation and transition rules for the last quarter of the year.

Key amounts (effective Oct. 1, 2025):

• Transportation industry meals and incidental expenses (M&IE):
  • $80 for the continental United States (CONUS)
  • $86 for outside the continental United States (OCONUS)
• Incidental expenses only: $5 per day
• High-low method (CONUS):
  • $319 per day for high-cost localities
  • $225 per day for other localities
• Meals portion inside high-low:
  • $86 (high cost)
  • $74 (other)
  • These amounts drive the §274(n) meals limitation

The notice republishes the high-cost locality list for use with the high-low method. Check location-specific effective dates, since some localities are treated as high-cost only during peak periods.

Applicable uses of per diems

Accountable plans: Employers may reimburse employees using per diem allowances instead of actual receipts. Employees must still document each trip’s time, place and business purpose. If updating rates, align the change to Oct. 1 to follow IRS timing.

Transportation workers: Drivers and other eligible transportation industry employees may use the special M&IE per diem rates ($80 for CONUS, $86 for OCONUS) as an alternative to actual meals and incidental costs.

Self-employed individuals: Sole proprietors can use M&IE per diem rates when traveling for business. Additional rules apply for lodging; while employees may be reimbursed for lodging using per diem methods under an accountable plan, self-employed individuals can’t use a lodging per diem. They must substantiate lodging expenses with actual receipts and keep records that support the business purpose, dates and location of the stay.

How much of the per diem is actually deductible?

Under §274(n), only 50% of the meals portion of a per diem is deductible. For high-low users, that portion is the $86 (high-cost locality) or $74 (other locality) figure published annually by the IRS.

The lodging portion of a properly substantiated per diem is not subject to the 50% limit. That amount is fully deductible as a business travel expense, assuming the trip qualifies under standard travel rules.

Entertainment expenses remain nondeductible, even when using a per diem. Meals must be business-related, and the purpose, date and location must still be documented.

How to handle first and last travel days

Most expense systems apply 75% of the meals and incidental expenses (M&IE) rate for the first and last day of travel. While not required by the IRS, this proration method is widely accepted and referenced in Publication 463, Travel, Gift, and Car Expenses, and Rev. Proc. 2019-48 as a reasonable approach.

If using the high-low method, apply 75% to the meals portion ($86 or $74) on departure and return days, then limit the result to 50% deductibility under §274(n). The lodging portion is not prorated under this method because the high-low rate is a combined daily allowance.

Employers should document their chosen per diem proration policy and apply it consistently across all employees and travel types.

Example 1: high-cost locality business trip

Your employee, Jen, travels to Washington, D.C., a high-cost locality, for four days (Oct. 21-24, 2025). Your reimbursement procedures use the high-low per diem method.

• Full days of travel: Oct. 22 and 23
• First and last days of travel: Oct. 21 and 24 (apply 75% to the meals portion only)

Step 1: Calculate total per diem allowance

• Daily high-low rate: $319
• Days away from home: 4
• Total reimbursement: $319 × 4 = $1,276

Step 2: Identify the meals portion

• Full-day meals (Oct. 22-23): $86 × 2 = $172
• First/last-day meals (Oct. 21 and 24): $86 × 75% × 2 = $129
• Total meals portion = $172 + $129 = $301

Step 3: Apply 50% meals limitation under §274(n)

• Deductible meals: $301 × 50% = $150.50
• Lodging portion: $1,276 – $301 = $975.00
• Total deductible travel expense: $975.00 + $150.50 = $1,125.50

Example 2: transportation worker using M&IE only

Clark, a long-haul truck driver, travels within the continental United States (CONUS) for five full days, Oct. 6-10, 2025. His employer uses the transportation industry meals and incidental expenses (M&IE) per diem rate and reimburses under an accountable plan.

• M&IE rate (CONUS): $80 per day
• Total reimbursement: $80 × 5 = $400
• Meals deduction under §274(n): $400 × 50% = $200 deductible

Notes:

• Lodging is not reimbursed using per diem in this case. If lodging is paid separately, it must be substantiated and deducted according to actual costs.
• The employee must still document time, place and business purpose of the travel to qualify for accountable plan treatment.
• If the driver traveled OCONUS, the M&IE rate would be $86 instead of $80.

Common per diem pitfalls to watch for

• Mixing methods mid-trip. Use a consistent method for each trip and ensure any policy updates are documented beginning Oct. 1, 2025.
• Wrong locality or season. Verify that a destination is or is not high-cost for the actual dates of travel.
• Missing business purpose. Per diems do not replace the need to substantiate time, place and business purpose under Rev. Proc. 2019-48.
• Forgetting state rules. Some states don’t conform to federal treatment of per diems or meals limitations. Always verify state guidance when per diem amounts may impact tax treatment.

Per diem procedures to update this quarter

• Expense system rates: Flip to the Oct. 1, 2025, amounts and verify first/last-day percentages and rounding rules.
• Travel policy: Restate high-low usage, partial day treatment and how to document mixed business and personal travel.
• Payroll and accountable plan coordination: Confirm that reimbursements are properly excluded from wages under accountable plan rules and that non-accountable payments are captured in payroll.

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