IRS Per Diem Rules for 2026-2027. What Notice 2026-60 Changes and What Employers Still Have to Prove

By Gilbert Gomez, CPA | Gomez CPA | Insights

New Rates Effective October 1, 2026

The IRS has released updated special per diem rates for the 2026-2027 period in Notice 2026-60. The new rates apply beginning October 1, 2026.

At first glance, this looks like a routine annual tax update. The high-low per diem rate increases to $329 per day for designated high-cost localities and $230 per day for other locations within the continental United States.

But the rates themselves are probably the least important part of the guidance.

The more important issue is understanding what a per diem allowance actually does for tax purposes.

A properly structured per diem arrangement can substantially reduce the paperwork associated with employee business travel. Instead of requiring employees to document every hotel bill, meal and incidental expense, federal tax rules allow certain amounts to be treated as substantiated based on prescribed per diem rates.

That does not mean documentation disappears.

Employees must still establish when they traveled, where they traveled and why the trip was related to the employer's business. The arrangement also needs to operate within the accountable plan rules if the reimbursement is to remain outside the employee's taxable wages.

And for owners of closely held businesses, self-employed taxpayers and certain related employees, some of the most convenient per diem methods may not be available at all.

Notice 2026-60 therefore provides a useful opportunity to look beyond the annual rates and examine how the federal per diem system actually works.

What Changed for 2026-2027

Notice 2026-60 applies to qualifying allowances paid on or after October 1, 2026 for travel away from home occurring on or after that date. It supersedes Notice 2025-54.

Under the high-low substantiation method, the new rate is $329 per day for travel to a designated high-cost locality and $230 per day for travel to any other locality within the continental United States.

For federal per diem purposes, the continental United States, commonly referred to as CONUS, consists of the 48 contiguous states and the District of Columbia. Alaska and Hawaii are outside CONUS.

Of the $329 high-cost rate, $86 is treated as paid for meals and incidental expenses, or M&IE, for purposes of IRC §274(n). Of the $230 rate, $74 is treated as M&IE.

The previous high-low amounts were $319 and $225, respectively. The $86 and $74 M&IE components remain unchanged.

Notice 2026-60 also keeps the special transportation-industry M&IE rates at $80 per day for CONUS travel and $86 per day for travel outside CONUS.

The notice also retains a $5 incidental-expenses-only rate, although that provision is more limited than the name may initially suggest.

The updated notice modifies the list and applicable periods for several high-cost localities. Tucson, Arizona; San Mateo/Foster City/Belmont, California; Albuquerque, New Mexico; and Cody, Wyoming were added to the high-cost list. Panama City, Florida was removed.

Several existing high-cost localities also had their applicable periods changed.

These rates are useful for payroll, accounting and travel-policy purposes, but they do not by themselves explain what the IRS means when an expense is "deemed substantiated."

That distinction is where the tax rules become more important.

Per Diem Is a Substantiation Method, Not an Automatic Deduction

IRC §274(d) imposes heightened substantiation requirements on certain expenses, including business travel.

Normally, the taxpayer must be able to establish the amount of the expenditure as well as the time, place and business purpose of the travel.

Revenue Procedure 2019-48 provides alternative methods for establishing the amount of certain travel expenses. When the requirements are satisfied, an employer can use an applicable federal per diem rate instead of requiring the employee to establish the actual amount spent on lodging, meals and incidental expenses.

For a qualifying lodging, meal and incidental expense allowance, the amount deemed substantiated for a particular day generally equals the lesser of the allowance actually paid by the employer or the applicable federal per diem amount.

Suppose an employer uses the high-low method and sends an unrelated employee to a high-cost locality. The employer pays $329 per day.

Assuming the other requirements are satisfied, the $329 amount can be treated as substantiated without requiring the employee to establish that the hotel actually cost a specific amount or that the employee spent a particular amount on meals.

Under the qualifying per diem method, a lodging receipt generally is not required to substantiate the amount.

But the per diem amount is not a fictional deduction created simply because an employee traveled.

There must still be qualifying business travel, and the reimbursement arrangement must satisfy the applicable tax rules.

What the Employee Still Has to Document

Using a per diem does not eliminate the substantiation requirements for the other elements of the trip.

Revenue Procedure 2019-48 requires the employee to substantiate the time, place and business purpose of the travel within a reasonable period.

For travel, the time element generally includes the dates of departure and return and the number of business days away from home. The place element identifies the destination or locality. The business-purpose element explains why the travel occurred and the business benefit expected from the trip.

A business travel record might therefore state:

October 19 through October 21, 2026.

New York City.

On-site meetings with ABC Manufacturing regarding implementation of the company's new accounting system.

That is very different from simply recording:

Travel reimbursement: $987.

The per diem rules may relieve the employee from substantiating the exact dollar amount of qualifying expenses, but they do not relieve the employee or employer from establishing that legitimate business travel occurred.

The Accountable Plan Is What Keeps the Reimbursement Out of Wages

The per diem rules also need to be considered together with the accountable plan requirements.

Under Treasury Regulation §1.62-2, an accountable reimbursement arrangement generally must satisfy three requirements.

The expense must have a business connection.

The employee must adequately substantiate the expense within a reasonable period.

The employee must return amounts that are required to be returned because they exceed the amount properly substantiated.

When those requirements are satisfied, qualifying reimbursements generally are not treated as taxable wages.

Amounts paid under a nonaccountable plan, by contrast, generally are treated as compensation and included in the employee's taxable wages.

This means that a business should not think of a per diem policy as simply:

"We pay employees $329 whenever they travel."

A defensible policy needs to connect the payment to actual business travel and require the employee to document the required elements.

Consider an employer that pays an employee a normal salary of $2,000 per week but, whenever the employee travels, reclassifies $300 of that salary as a travel reimbursement.

That does not turn $300 of compensation into a tax-free per diem.

The accountable plan regulations specifically reject arrangements that merely relabel compensation as expense reimbursement. The reimbursement must actually be connected to qualifying business expenses.

Paying More Than the Federal Rate Can Create Taxable Compensation

The applicable federal per diem amount also limits how much may be treated as substantiated under the safe-harbor method.

Suppose an employee travels to a high-cost locality and the employer pays a $375 daily per diem allowance.

The applicable high-low amount is $329.

Assuming the employee properly substantiates the time, place and business purpose of the trip, $329 may be treated as substantiated under the per diem method.

The remaining $46 is treated as paid under a nonaccountable plan and generally is included in the employee's taxable wages.

This does not mean that every excess allowance must physically be repaid to the employer.

The return-of-excess requirement operates differently depending on what created the excess.

If an employee receives an advance covering five travel days but only substantiates three days of qualifying travel, the portion attributable to the two unsubstantiated days generally must be returned within a reasonable period.

If the employee properly substantiates the travel day but the employer simply pays more than the applicable federal per diem amount, the excess may instead be treated as a nonaccountable plan payment and included in taxable wages.

That distinction is important when designing payroll and expense reimbursement procedures.

"Away From Home" Has a Tax Meaning

Another frequent source of confusion is the phrase "travel away from home."

For federal tax purposes, "home" generally means the taxpayer's tax home, not necessarily the place where the taxpayer's personal residence happens to be located.

The tax home generally is the individual's regular place of business or post of duty and the surrounding area.

To qualify as traveling away from home, the employee's duties generally must require the employee to be away from the tax-home area substantially longer than an ordinary workday and require sleep or rest to properly perform those duties.

This creates an important distinction between business travel and local transportation.

An Atlanta employee who drives to a client meeting elsewhere in the metropolitan area and returns home that afternoon has not automatically created a qualifying per diem travel day.

An employee who travels from Atlanta to Tampa for a two-day client engagement and stays overnight presents a much more conventional travel-away-from-home situation.

Per diem rules should not be used to convert commuting, ordinary local meals or personal expenses into tax-free reimbursements.

The High-Low Method Is Not the Only Per Diem Method

Notice 2026-60 can also create the mistaken impression that every business must use either $329 or $230.

That is not the case.

The high-low method is an administrative simplification available under Revenue Procedure 2019-48.

Instead of determining a locality-specific lodging and M&IE amount for every destination, an employer generally uses one rate for designated high-cost locations and another for the remainder of CONUS.

The regular federal per diem method works differently.

The General Services Administration, or GSA, publishes locality-specific lodging and M&IE rates. Many destinations have different lodging rates depending on the city, county and sometimes the month of travel.

For fiscal year 2027, GSA increased the standard CONUS lodging amount from $110 to $113 per day. The standard M&IE amount remains $68. Higher-cost destinations use M&IE rates that range up to $92.

GSA reports that 295 areas receive non-standard rates for fiscal year 2027.

A business therefore may prefer the locality-specific method when it better reflects actual travel patterns, while another business may favor the administrative simplicity of the high-low method.

The method selected should be reflected consistently in the employer's reimbursement procedures.

Seasonal High-Cost Localities Matter

A locality can be classified as high cost during only part of the year.

For example, under Notice 2026-60, Atlanta, specifically Fulton and DeKalb Counties, is treated as a high-cost locality from January 1 through March 31.

Jekyll Island and Brunswick, within Glynn County, are high-cost localities from March 1 through July 31.

Tampa and St. Petersburg, covering Pinellas and Hillsborough Counties, are classified as high cost from February 1 through April 30.

New York City, covering Bronx, Kings, New York, Queens and Richmond Counties, is treated as a high-cost locality for the entire October 1, 2026 through September 30, 2027 per diem period.

That is a change from the prior notice, which excluded January and February from New York City's high-cost period.

The correct high-low rate therefore depends not only on where an employee traveled, but sometimes on when the employee traveled.

That is another reason travel policies should capture exact dates instead of simply recording the destination.

Meals Still Have a Separate Deductibility Issue

A per diem rate establishes a substantiated amount.

It does not necessarily determine the employer's ultimate tax deduction.

Notice 2026-60 identifies the portion of the high-low allowance treated as paid for food and beverages for purposes of IRC §274(n).

For a high-cost location, $86 of the $329 rate is treated as the M&IE component.

For other CONUS locations, $74 of the $230 rate is treated as M&IE.

That allocation matters because business food and beverage expenses generally remain subject to the applicable §274(n) limitation.

Under current law, qualifying business meal expenses are generally subject to a 50 percent deduction limitation unless an exception applies.

Therefore, treating a $329 per diem as substantiated does not necessarily mean the employer receives an unrestricted $329 deduction.

Substantiation and deductibility are related concepts, but they are not the same question.

The $5 Incidental-Expenses-Only Rate Is Not an Extra Allowance

Notice 2026-60 also retains the incidental-expenses-only deduction rate at $5 per day.

This is a separate deduction method available in the circumstances described in Revenue Procedure 2019-48. It is not an additional $5 employer per diem allowance that can simply be added to M&IE.

The term "incidental expenses" is also narrower than it may initially sound.

For these purposes, incidental expenses generally include fees and tips paid to porters, baggage carriers, bellhops, hotel staff and staff on ships.

It is not a general allowance for miscellaneous travel costs such as snacks, parking, rideshare charges or personal purchases.

More importantly, the $5 incidental-expenses-only method generally applies for a qualifying day or partial day of travel away from home when the taxpayer incurs incidental expenses but does not incur meal expenses.

It cannot be stacked on top of an M&IE amount.

For example, if a taxpayer uses the applicable $74 M&IE amount for a qualifying travel day, another $5 is not added for incidental expenses.

Incidental expenses are already included within M&IE.

The $5 method is therefore most relevant in the less common situation in which qualifying incidental expenses are incurred during business travel but no meal expenses are incurred.

It also should not be confused with a general employer reimbursement rate. Revenue Procedure 2019-48 treats it as a specific incidental-expenses-only deduction method and does not permit employers using the ordinary per diem reimbursement methods to simply add the $5 amount to an otherwise allowable per diem.

Closely Held Businesses Need to Be Particularly Careful

One of the more important provisions in Revenue Procedure 2019-48 receives relatively little attention in routine discussions of per diem rates.

The revenue procedure contains a related-party limitation.

The lodging-inclusive per diem method under Section 4.01 and the high-low method under Section 5 do not apply when the employer and employee are related within the meaning of IRC §267(b), using a special 10 percent ownership threshold for this purpose.

For example, the related-party rules can apply when an employee owns, directly or indirectly, more than 10 percent in value of the outstanding stock of the employer corporation.

This is particularly important for shareholder-employees of closely held corporations.

Consider an owner who holds 100 percent of an S corporation and is also an employee of that corporation.

It would be incorrect to assume that because an unrelated employee can receive the $329 lodging-inclusive high-low allowance without submitting lodging receipts, the shareholder-employee can automatically do the same thing.

The related-party restriction specifically removes the lodging-inclusive per diem method and the high-low method for covered related employees.

That does not necessarily eliminate every simplified travel method.

For example, an M&IE-only method may still be relevant in an appropriate situation where lodging is reimbursed based on actual substantiated costs and the remaining requirements are satisfied.

The distinction is important for S corporations and other closely held businesses because it prevents owners from treating the high-low rate as an automatic tax-free withdrawal from the company.

A written reimbursement policy should therefore specifically consider whether employees receiving travel allowances are related to the employer.

Self-Employed Taxpayers Have Different Rules

The rules also differ for sole proprietors and other self-employed individuals.

A self-employed taxpayer generally cannot simply multiply business travel days by the $329 or $230 high-low amount and claim that figure as a lodging deduction.

Revenue Procedure 2019-48 does not permit employees and self-employed individuals to use the high-low substantiation method as a substitute for the M&IE-only deduction method.

There is also no optional standard lodging allowance for an individual's own deduction comparable to the standard meal allowance.

Actual lodging costs generally must be substantiated.

A self-employed taxpayer may, however, use the applicable standard meal allowance instead of maintaining records of actual meal costs, subject to the applicable limitations.

This means the statement:

"The IRS per diem rate is $329, so I get a $329 deduction"

can be highly misleading when applied to a Schedule C taxpayer.

The answer depends on who is traveling, who is paying the expense and what reimbursement arrangement exists.

Partial Travel Days Also Require a Method

Departure and return days often create another practical issue.

For partial travel days, the applicable M&IE amount may generally be prorated using 75 percent of the applicable rate.

For qualifying employer reimbursement arrangements, another consistently applied method that reflects reasonable business practice may also be permitted.

For example, if the applicable M&IE amount is $86, a 75 percent partial-day amount would be $64.50.

If the applicable M&IE amount is $74, a 75 percent partial-day amount would be $55.50.

The important point is consistency.

An employer should not use one partial-day methodology for certain employees or trips and another methodology whenever it produces a more favorable result.

An Example: Employee Travel to New York

Assume a Georgia company sends an unrelated employee to New York City for three full business travel days in November 2026.

The company uses the high-low method.

New York City is classified as a high-cost locality for the entire October 1, 2026 through September 30, 2027 notice period, so the applicable high-low amount is $329 per day.

The company pays:

$329 × 3 days = $987.

The employee documents the dates of the trip, New York City as the destination and the business purpose of meeting with a customer.

Assuming the other requirements are satisfied, the $987 can generally be treated as substantiated under the per diem method without requiring the employee to establish the precise amount spent on lodging, meals and incidental expenses.

For purposes of IRC §274(n), $86 of each $329 daily allowance is treated as paid for food and beverages.

For three full travel days:

$86 × 3 days = $258.

That $258 amount is then considered under the applicable business-meal deduction rules.

The example illustrates why per diem accounting involves more than simply multiplying the number of travel days by an IRS rate.

The reimbursement, wage treatment, substantiation and employer deduction all need to be considered separately.

Employers Should Review More Than the Rate Schedule

For a business using per diem allowances, a sound travel reimbursement process should address several items.

The policy should define when travel qualifies as travel away from an employee's tax home.

It should identify whether the business will use actual expenses, regular federal per diem rates, the high-low method or an M&IE-only method.

Employees should be required to document travel dates, destination and business purpose.

The business should establish procedures for travel advances and unsubstantiated travel days.

The policy should specify how reimbursements exceeding federal substantiation limits will be handled through payroll.

The M&IE component should be properly identified for application of IRC §274(n).

Related-party employees, particularly owners of closely held corporations, should be identified before the high-low or lodging-inclusive per diem methods are applied.

Partial-day and year-end transition rules should be applied consistently.

Finally, the travel reimbursement process should be coordinated with payroll so taxable excess allowances or other nonaccountable plan amounts are properly included in wages when required.

The goal of a per diem policy should not simply be to reduce receipts.

A properly designed policy should reduce administrative work while preserving the documentation necessary to support the tax treatment of the reimbursement.

The October 1 Transition Does Not Necessarily Require an Immediate Policy Change

Notice 2026-60 applies to qualifying allowances paid on or after October 1, 2026 for qualifying travel occurring on or after that date.

Revenue Procedure 2019-48 also contains transition rules for the final three months of a calendar year.

For employers already using the high-low method, the employer generally must continue using the high-low method for that employee through the end of the calendar year.

For October through December, however, the employer may generally choose either the rates and high-cost localities applicable during the first nine months of the calendar year or the newly issued rates and locality designations.

Whichever approach is selected must be applied consistently to employees reimbursed under the high-low method.

This means October 1 does not necessarily require every employer to immediately reconfigure its travel reimbursement system.

It does require the business to understand which rates it has elected to use and apply the approach consistently.

The Bigger Issue Is Not the $10 Increase

The headline from Notice 2026-60 is straightforward.

The high-cost per diem rate increased from $319 to $329, and the lower CONUS rate increased from $225 to $230.

But that is not the most important takeaway.

A per diem is fundamentally a substantiation mechanism.

It can eliminate the need to document the actual dollar amount of certain qualifying travel expenses, but it does not eliminate the need to establish that the employee was traveling away from home for a legitimate business purpose.

It also does not override the accountable plan rules, the IRC §274(n) meal limitation, related-party restrictions or the separate rules applicable to self-employed taxpayers.

For employers, the real opportunity presented by the annual per diem update is therefore not simply to replace one rate schedule with another.

It is an opportunity to review whether the company's travel reimbursement policy actually supports the tax treatment being claimed.

Per Diem Does Not Eliminate Internal Controls

Per diem arrangements can simplify travel reimbursement, but they do not eliminate the need for review and approval controls.

Managers and accounting personnel still need to determine whether the underlying travel qualifies as a business expense and whether the employee has properly documented the time, place and business purpose of the trip. A per diem rate should never become a substitute for understanding what the employee is actually requesting reimbursement for.

I encountered this issue earlier in my accounting career when an employee submitted an expense report requesting five days of per diem reimbursement. The employee's manager approved the report without questioning the underlying expense.

During the accounting review, the reimbursement was flagged because the required business-travel substantiation was missing.

Further investigation revealed that there had been no business trip at all. The employee had rented a vehicle for the week because his personal vehicle was being repaired and had attempted to submit the rental cost as a per diem expense.

His explanation was straightforward and memorable, "My car broke down and was in the repair shop, and I needed a way to get to work."

The employee did, in fact, need transportation to work. But that did not convert the personal transportation expense into qualifying business travel.

The example illustrates an important control point. A per diem policy can reduce the need to review individual hotel and meal receipts, but accounting personnel still need to verify that qualifying business travel occurred in the first place. Supervisory approval alone should not replace that review.

How Gomez CPA Can Help

A per diem policy can reduce administrative work, but only if the reimbursement process is structured correctly.

Gomez CPA can review an existing travel reimbursement policy or help develop one that addresses accountable plan requirements, per diem methods, documentation standards, related-party employees, meal limitations and payroll treatment.

For businesses that do not currently have a formal policy, we can also help establish a practical per diem and expense reimbursement process that fits the company's travel patterns, accounting system and internal controls.

The objective is straightforward. Simplify travel reimbursement without creating avoidable payroll or tax issues.

Primary Authorities and References

Internal Revenue Code §62, Adjusted Gross Income Defined.

Internal Revenue Code §162, Trade or Business Expenses.

Internal Revenue Code §267, Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers.

Internal Revenue Code §274, Disallowance of Certain Entertainment, etc., Expenses.

Treasury Regulation §1.62-2, Reimbursements and Other Expense Allowance Arrangements.

Treasury Regulation §1.274-5, Substantiation Requirements.

Treasury Regulation §1.274-5T, Temporary Regulations Regarding Substantiation.

IRS Notice 2026-60, Special Per Diem Rates for Travel Away From Home on or After October 1, 2026.

IRS Notice 2025-54, prior-year special per diem rates and high-cost locality designations.

Revenue Procedure 2019-48, Rules for Using Per Diem Rates to Substantiate Employee and Self-Employed Business Travel Expenses.

IRS Publication 463, Travel, Gift, and Car Expenses.

General Services Administration, Per Diem Bulletin FTR 27-01, Fiscal Year 2027 CONUS Per Diem Rates.

This article provides general information concerning federal tax and business travel reimbursement matters and is not intended to constitute tax, accounting, legal or other professional advice. The application of the per diem, accountable plan and substantiation rules depends on the taxpayer's specific facts and circumstances, including the nature of the travel, the relationship between the employer and employee, the reimbursement arrangement and the taxpayer's business structure. Businesses and taxpayers should consult a qualified professional regarding their particular circumstances. Information and references are current as of October 2026.

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