Language 
Per diem meaning: What it is and how it works
What a per diem covers, current federal rates, how it's taxed, and more.
Per diem means “per day” in Latin.
At work, it most often refers to a fixed daily allowance your employer pays to cover lodging, meals, and small incidental costs on a business trip.
This guide contains:
- What a per diem covers
- How per diem rates are set
- How per diem is taxed
If you travel abroad for work, Holafly for Business keeps you online with secure mobile data.
Get online on work trips abroad
What does a per diem cover?
According to IRS Publication 463, a per diem is a fixed daily amount your employer gives you for lodging, meals, and incidental expenses when you’re away from home on business.
Here’s what each category includes:
- Lodging: Hotel or other overnight stays
- Meals: Breakfast, lunch, and dinner
- Incidentals: Fees and tips for porters, baggage carriers, and hotel staff (laundry and lodging taxes don’t count)
If your company books your hotel, it may pay a per diem for meals and incidentals only. Airfare, car rentals, and mileage aren’t part of a per diem, so they’re reimbursed separately.
You may also wonder how a per diem differs from expense reimbursement.
- With a per diem, you get a flat amount and only prove the time, place, and business purpose of each trip, without meal receipts.
- With expense reimbursement, you pay first and get back what your receipts show.
Your company may also mix the two (e.g., paying hotel costs as billed along with a flat meal rate).
How are per diem rates set?
Your company sets its own per diem rates.
That said, federal rates still matter because they’re the tax-free limit, making them a benchmark for a fair per diem. Four federal agencies set these rates, and the GSA’s FY2027 rates apply to trips from October 1, 2026, through September 30, 2027.
Here’s how they compare:
| Rate | Who sets it | FY2027 amount |
|---|---|---|
| Standard rate (continental US areas without their own rate) | General Services Administration (GSA) | $113 lodging and $68 meals and incidentals ($181 a day) |
| Higher-cost cities (295 locations) | GSA | Varies by month (e.g., New York City: up to $358 lodging in November 2026 and $92 meals and incidentals) |
| High-low method | IRS | $329 a day in high-cost areas and $230 elsewhere (including $86 and $74 for meals and incidentals) |
| Alaska, Hawaii, and US territories | Department of Defense | Varies by location |
| Foreign countries | State Department | Varies by country, in US dollars |
For trips abroad, the State Department sets a rate for each country and updates its rates monthly.
How is per diem taxed?
A per diem at or below the federal rate isn’t taxed, as long as your company pays it under an accountable plan.
Here’s what the IRS requires:
- Business purpose: The trip is for work
- Proof: You show the time, place, and business purpose of each trip within a reasonable time (the IRS treats 60 days as reasonable)
- Returning extra: You return any amount you can’t account for (e.g., per diem for travel days you can’t prove), with 120 days treated as reasonable
If your per diem is above the federal rate, the federal-rate portion shows in box 12 of your W-2 (code L) and stays tax-free, while the excess counts as wages in box 1.
Your company may pay per diem in advance or with your paycheck after the trip, but the tax-free part isn’t counted as wages.
Pros and cons of a per diem
A per diem trades receipts for a fixed budget.
Below are its main pros:
- Less paperwork: No meal receipts or itemized expense reports
- Known budget: You know your daily amount before you leave
- Flexibility: You decide where and what to eat
On the other hand, a flat rate may not reflect your actual spending, and you’ll have to cover any amount above it.
Planning your next work trip? See our guides to a business trip plan, a business travel checklist, and a business trip packing list.
Get secure mobile data abroad with Holafly for Business
When a work trip takes you abroad, secure mobile data is key.
Holafly for Business is an eSIM provider available in 160+ destinations that activates on your device, so you don’t have to worry about local SIM cards or roaming charges. Your company also gets access to our centralized management platform, the Holafly Business Center, where admins can manage individual eSIMs, invoices, and data usage.
Holafly Plans for Business come in four tiers, all featuring hotspot, 4G/5G, and 24/7 multilingual support:
- Daily: Unlimited data with pay-per-day flexibility, built for short business trips under 16 days a month.
- Monthly: Unlimited data for teams traveling more than 16 days a month, a fit for frequent travelers and long-term remote staff.
- Annual: Unlimited data for ultra-frequent travelers, suited to long-term global operations and predictable annual budgets.
- Enterprise: Bespoke plans for companies managing travel for 20+ employees a year, with volume discounts, a dedicated account manager, priority support, and custom integrations, built to optimize costs, streamline operations, and ensure seamless global connectivity across teams.
Not sure which plan is right for your team? Book a demo.
Get online on work trips abroad
I’m a writer with over eight years of experience in digital content. My work has appeared in publications such as The New York Times, Forbes, Business Insider, and the BBC. At Holafly, I write clear, practical guides to help travelers stay connected with eSIM technology. In my spare time, I enjoy car detailing, biking around Warsaw, and capturing portraits.
