Managing business travel expenses can be a headache for employers and employees alike. Tracking receipts for meals, hotels, and incidentals often leads to frustration and administrative burdens. Fortunately, the IRS’s high-low per diem method offers a streamlined alternative. This approach allows businesses to reimburse employees using fixed daily rates based on destination costs, eliminating the need for detailed receipt tracking while maintaining tax compliance. In IRS Notice 2025-54, the updated high-low per diem rates—effective October 1, 2025, through September 30, 2026—provide clear guidelines for 2025-2026 business travel per diems.
By adopting per diem rates for business travel, companies can reduce paperwork, ensure IRS compliance, and treat reimbursements as non-taxable (as long as they don’t exceed limits). This method is especially useful for frequent travelers, saving time and minimizing errors in expense reporting.
How the IRS Per Diem Method Works for Business Travel
The per diem reimbursement method replaces itemized receipts with predetermined IRS rates. Employees only need to record the trip’s time, location, and business purpose—making it ideal for simplifying 2025-2026 travel expenses.
Key benefits include:
- Tax Advantages: Reimbursements up to IRS per diem limits are not considered taxable income, avoiding income or payroll tax withholding.
- High-Low Simplification: The IRS designates “high-cost” areas (like Boston or Los Angeles) with higher rates, while all other continental U.S. locations default to “low-cost.” This can substitute for location-specific rates.
- Seasonal Variations: Some areas, such as New York City or Chicago, qualify as high-cost only during peak seasons (e.g., warmer months in resorts or busier periods in cities).
- Partial Reimbursements: If lodging is provided directly by the employer, employees can receive per diems just for meals and incidental expenses (M&IE). There’s also a $5 flat rate for incidental-only expenses on days without meal costs.
- Restrictions: Per diems cannot be paid to owners with 10% or more stake in the business.
This system promotes efficiency in business travel expense management, aligning with IRS guidelines for per diem rates.
Updated 2025-2026 High-Low Per Diem Rates
For travel on or after October 1, 2025:
- High-Cost Areas: $319 total per day ($233 for lodging + $86 for M&IE).
- Low-Cost Areas: $225 total per day ($151 for lodging + $74 for M&IE).
For trips spanning the transition, maintain the same reimbursement method used in the first nine months of 2025. These rates apply only to continental U.S. travel and help businesses optimize 2025-2026 per diem reimbursements.
Why Revisit Your Travel Reimbursement Policy Now
As 2026 approaches, evaluate switching from actual expenses to per diem methods. This shift can streamline operations, ensure IRS per diem compliance, and reduce frustration for all involved. Consult a tax professional to implement efficient, compliant strategies tailored to your business.
For personalized advice on IRS high-low per diems or business travel reimbursements, contact us today.