How are Per Diem Rates Taxed?
Per Diem is considered a reimbursement for business expenses and is therefore tax free up to the IRS's maximum allowable Per Diem Rate. If you do not receive Per Diem reimbursement for business travel, you may deduct up to half (50%) of the maximum allowable Per Diem rate plus any other acceptable expenses. If you work in the transportation industry (such as a pilot, steward, or stewardess), you may deduct up to 80% of your travel expenses.
Per Diem rates vary based on when and where you are traveling. More expensive cities have higher Lodging and M&IE Per Diem rates (What are M&IE Per Diem Rates?). Per Diem rates also increase during peak travel season.
More: Calculator your GSA/IRS Per Diem Rate
If you spend more on Lodging or Meals and Incidentals than is allotted by the standard Per Diem rate you may not deduct the excess. Similarly, if you receive Per Diem reimbursement from your employer that exceeds the IRS Per Diem rate then the excess is considered taxable wages. Additionally, you cannot "mix and match" your Lodging and M&IE Per Diem. For instance, if you spend less on meals that is allotted, you may not credit the unused meals deduction towards lodging deductions that exceed the maximum Lodging Per Diem rate. You may spend more on lodging and meals than is allotted by Per Diem, but you may not deduct more for either Per Diem category.
What Travel Expenses can be Deducted?
The GSA Per Diem rates (these are the rates the IRS uses for travel within the 48 contiguous states) are not designed to cover all travel expenses. The GSA Per Diem rates cover only lodging, meals, and incidental. "Incidentals" are narrowly defined as "fees and tips given to porters, baggage carriers, hotel staff, and staff on ships." Other business travel expenses incurred during travel that are not included in the GSA Per Diem rate may be deducted individually. Luxury items and lavish expenses may not be deducted. See the List of Acceptable Per Diem Expenses for a full explanation of what is covered by Per Diem.
Alcohol may not be included in Per Diem meal expenses. Food and drink may be deducted separately if it is a business expense. Ordinary and necessary expenses that may be deducted, but are not included in Per Diem include:
- Food and Drink
- Dry Cleaning
- Parking at Airport
- Parking at Destination
- Tolls
- Internet (if not included)
- Heat or A/C (if not included)
- Checked Baggage
- Car Rental
- Hotel and Room Tax (Hotel and Room Tax are not included in the GSA Lodging Per Diem rate. As a result, these taxes can be deducted separately)
- etc.
Mileage rates reimbursement rates may be deducted. The IRS uses the GSA mileage rates for determining appropriate mileage deductions. These are the rates the federal government reimburses employees for business travel in a personally owned vehicle. These are also the rates many state and local governments and private companies use. See the most recent IRS/GSA Mileage Rates.
PerDiem101.com is not affiliated with the United States government or any Government agency. We cannot answer questions about a specific case. Please direct questions to the IRS or a tax professional.