IRS Announces Per Diem Rates for Business Travel Expense Reimbursement by Alik MacLauchlan
The IRS recently announced that the per diem rates employers may use to reimburse ordinary and necessary business travel expenses their employees incur or pay beginning on October 1, 2025, remain unchanged from the prior year.
The per diem rates enable employers to use a flat daily allowance for reimbursing employees for the costs of lodging, meals, entertainment and other incidentals incurred while traveling away from home or principal place of work for business purposes. Employers may instead track and substantiate actual expenses with adequate documentation and other sufficient evidence. Self-employed individuals who deduct unreimbursed expenses for travel away from home may also use a per-diem rate for meals and incidental expenses (M&IE), or incidental expenses only.
The special transportation industry M&IE rates for taxpayers in the transportation industry, including laundry service providers, dry cleaning and/or tips to food servers, hotel employees or baggage handlers, remain at $80 for any locality of travel in the continental United States (CONUS) and $86 for any locality of travel outside the continental United States (OCONUS). Incidental travel expenses, excluding transportation costs between a worker’s home and their work location, remain at $5 per day.
For purposes of the high-low substantiation method, the per diem rates are $319 for travel to any high-cost locality and $225 for travel to any other locality within the continental U.S. The rates that apply solely to meals and incidental expenses remain at $86 per day in high-cost localities and $74 per day for any other area within the continental U.S. Taxpayers should also note the high-cost localities for which the IRS applies a per diem rate of $248 or more, including, but not limited to cities in Florida’s Broward, Collier, Miami-Dade, Hendry, Lee and Palm Beach counties; Chicago’s Cook and Lake counties; Ocean County New Jersey; and New York’s Bronx, Kings, New York, Queens, Richmond, Saratoga and Schenectady counties.
Both employees and their employers should also consider how the treatment of business travel expenses changes from 2025 to 2026. For example, the 2019 Tax Cuts and Jobs Act (TCJA) eliminated business deductions for expenses related to activities considered entertainment, amusement, or recreation. However, it carved out an exception that allowed businesses to deduct 50 percent of food and beverage costs purchased separately from nondeductible entertainment expenses through tax year 2025. While this deduction for business meals with clients remains intact for 2026 under the One Big Beautiful Bill Act (OBBBA), employers who provide meals to their employees at the employer’s convenience, via in-office cafeterias or snack bars, may no longer claim a 50 percent deduction in 2026 and beyond.
Businesses and their employees should work together to establish and implement written expense-reimbursement policies. Companies should also take the time to review these plans with their tax advisors to ensure they comply with changing federal and state laws, including the treatment of those expenses and repayments for tax purposes.
About the Author: Alik MacLaughlin is a senior manager of Tax Services with Berkowitz Pollack Brant, where he provides tax advisory and consulting services to high-net-worth families and businesses in the manufacturing, professional services, fintech and retail sectors. He can be reached at the CPA firm’s New York, NY, office at info@bpbcpa.com or (646) 213-7600.
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