New IRS High-Low Per Diem Rates for 2026-2027: Business Travel Reimbursement Guide

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Reimbursing employees for business travel can create a significant administrative burden, especially when every hotel charge, meal and incidental purchase must be documented separately. Federal per diem rates offer another option by allowing employers to reimburse qualifying travel expenses using established daily allowances.

The IRS has announced special per diem rates for travel from Oct. 1, 2026, through Sept. 30, 2027. Employers considering these rates should understand how the high-low method works, what documentation employees must provide and how the reimbursements affect business deductions.

Why businesses use per diem allowances

Under an actual-expense reimbursement system, employees submit receipts and expense reports showing what they paid for lodging, meals and incidental costs. The employer then reviews each expense before issuing reimbursement.

A per diem arrangement replaces much of that item-by-item reporting with a daily allowance. Potential benefits include:

• Less administrative work for employees and accounting teams
• More predictable travel budgets
• Fewer individual receipts to process
• A consistent reimbursement framework across the organization

Employees must still document when and where they traveled and the business reason for the trip. However, they generally don’t have to substantiate each individual amount covered by an allowable per diem payment.

How accountable plan treatment affects reimbursements

A properly administered accountable plan can allow qualifying travel reimbursements to be excluded from an employee’s taxable wages. As a result, those amounts generally aren’t subject to income or payroll tax withholding or reported as wages on Form W-2.

The employee must substantiate the business connection, time, place and purpose of the expense within a reasonable period. The employee must also return advances that exceed the substantiated amount.

If an employer pays more than the applicable federal allowance, the excess generally must be treated as taxable wages unless the employee documents sufficient additional expenses.

How the high-low per diem method simplifies travel reimbursement

Employers don’t have to research the federal rate for every destination. The high-low per diem method uses two standard amounts for qualifying travel within the continental United States:

• A high-cost rate for designated locations
• A lower rate for every other eligible location

Cities such as Boston, San Francisco, Seattle and Nashville may be included among the high-cost destinations. Some areas qualify only during specific months, so businesses must evaluate both the destination and the travel dates.

The IRS updates the list of high-cost locations periodically. Employers should check the applicable list before approving or processing a reimbursement.

Federal per diem rates for fiscal year 2027

For qualifying travel from Oct. 1, 2026, through Sept. 30, 2027, the high-low rates are:

High-cost locations

The total daily allowance is $329, an increase from $319 for fiscal year 2026. The 2027 amount consists of:

• $243 for lodging
• $86 for meals and incidental expenses

Other continental U.S. locations

The daily allowance for locations not designated as high-cost is $230, up from $225 for fiscal year 2026. That amount consists of:

• $156 for lodging
• $74 for meals and incidental expenses

These allowances apply only when the relevant requirements are met. A payment described as a per diem does not automatically receive tax-favored treatment.

Seasonal high-cost locations require closer review

Some destinations qualify for the high-cost rate only during a designated part of the year. Atlanta, for example, is treated as a high-cost location from Jan. 1 through March 31, 2027.

This distinction can affect employees who visit the same city at different times. A trip may qualify for the high-cost allowance during one season but fall under the lower allowance later in the year.

Employers should establish a process for confirming the destination’s status based on the employee’s actual travel dates.

When only meals and incidentals are reimbursed

An employer may pay for lodging directly or provide lodging to the employee. In that situation, the employee may receive an allowance covering only meals and incidental expenses.

A separate $5 incidental-expenses-only rate may apply when an employee does not pay or incur meal expenses for a full or partial travel day.

Businesses should distinguish among lodging, meal and incidental allowances in their travel policies and accounting records. The classification can affect both payroll treatment and the employer’s deduction.

Important limitations on the high-low method

The simplified method comes with consistency requirements and eligibility restrictions.

Businesses should consider the following rules:

• Once the business adopts the high-low method for an employee, it generally must continue using that method for the employee’s continental U.S. travel reimbursements during the calendar year.
• The employer may use another permissible reimbursement method for the employee’s travel outside the continental United States.
• During the final three months of a calendar year, an employer generally must use the same method for an employee that it used during the first nine months.
• The high-low method cannot be used for an employee who owns 10% or more of the business.

These rules make it important to select a reimbursement method deliberately rather than changing methods from trip to trip.

How per diem reimbursements affect business deductions

The lodging and meal portions of a per diem payment do not necessarily receive the same deduction treatment.

The amount allocated to meals and incidental expenses is treated as a food and beverage expense. It is generally subject to the 50% business meal deduction limit. The qualifying lodging portion is not reduced by that limitation.

Consider a manager who attends an October trade show in Denver and receives the $329 high-cost allowance. Based on the stated allocation:

• Lodging allowance: $243
• Meals and incidentals allowance: $86
• Potentially deductible meal portion after the 50% limit: $43
• Total potential deduction: $286

This example assumes the trip, reimbursement and supporting documentation otherwise meet applicable requirements.

Steps to take before changing your travel policy

The federal per diem rates can reduce paperwork, but the policy must still support appropriate substantiation and consistent administration.

Before adopting or modifying a per diem arrangement, consider taking these steps:

1. Review current travel and expense reimbursement procedures.
2. Identify which employees regularly travel for business.
3. Compare actual travel costs with the applicable per diem allowances.
4. Decide whether the locality-based rates or high-low method better fits your operations.
5. Confirm how employees will document the date, destination and business purpose of each trip.
6. Establish procedures for excess advances, partial travel days and employer-paid lodging.
7. Coordinate the policy with payroll, accounts payable and year-end tax reporting.

Choose a reimbursement method that fits your business

The right approach depends on travel frequency, destinations, administrative capacity and the company’s cost-control priorities. Actual-expense reimbursement may provide greater precision, while the high-low method can offer a simpler and more predictable process.

Before applying the new federal per diem rates, review your policy for accountable plan requirements, owner restrictions, documentation procedures and meal deduction treatment.

Contact Landmark CPAs to discuss how the new rates may affect your employee travel policy, payroll procedures and business expense deductions.

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© 2021. Updated October 2026.