What is Per Diem?
Per diem explained in plain English. Learn what per diem rates are, how freelancers and small business owners use them for travel and business expense deductions, and what the IRS allows.
What Is Per Diem?
Per diem (Latin for "per day") is a daily allowance provided to cover lodging, meals, and incidental expenses when an employee or self-employed individual travels for business. Instead of tracking every individual receipt for every cup of coffee and every taxi ride, per diem allows a flat daily rate to cover these costs — simplifying record-keeping and reimbursement. Per diem is widely used by: - Corporate employees traveling for work - Freelancers and contractors traveling for client work - Small business owners visiting remote offices or events - Anyone whose work requires overnight travel away from their tax home
How Per Diem Rates Work
The IRS publishes standard per diem rates annually, broken down by geographic area. These rates represent the maximum amount that can be deducted (or reimbursed without triggering taxable income) without itemized receipts. The per diem has two components: 1. Lodging — the daily rate for hotel or accommodation - Varies by city and cost of living - High-cost areas: $250–$350+ per night - Standard areas: $100–$150 per night 2. Meals and Incidentals (M&IE) — food, beverages, and tips - For 2024: $59–$79 per day depending on location - Business meal deductions are 50% of cost; using per diem for meals effectively sets a consistent daily amount Total per diem = lodging + meals/incidentals
IRS High-Low Method
The IRS offers a simplified "high-low" method: - High-cost localities: $71/day for meals + actual lodging - Standard localities: $71/day for meals + actual lodging The 2024 high-cost localities list includes major metropolitan areas like New York City, San Francisco, Los Angeles, Chicago, Boston, Washington DC, Seattle, and others. The full list is on IRS Publication 3.
Per Diem vs. Actual Expense Method
| | Per Diem Method | Actual Expense Method | |---|---|---| | Record-keeping | Simple — just track days traveled | Complex — every receipt required | | Deduction amount | Based on IRS flat rate | Based on actual spending | | Flexibility | Less flexible — limited to IRS rates | More flexible — can deduct more in expensive cities | | Requires receipts | No (except lodging over $75) | Yes — all receipts required | | Best for | Simplifying travel deductions | Frequent travelers in high-cost cities |
How Per Diem Works for Freelancers
As a freelancer traveling to meet a client, attend a conference, or work on-site, you can use per diem rates to simplify your deductions: Example: Conference Trip to San Francisco Freelance strategist Alex flies to San Francisco for a 3-day client strategy session. Trip details: - 3 nights lodging at $289/night (under IRS SF rate) = $867 - Per diem for meals: $71/day × 3 = $213 - Round-trip flight: $450 - Ground transportation: $85 Total deductible using per diem: $867 + $450 + $85 + $213 = $1,615 Without per diem, Alex would need receipts for every meal. With per diem, the $213 meals allowance is built in — no itemized meal receipts required. Note: The 50% limit on business meal deductions applies — so only $106.50 of the $213 meals allowance is deductible ($213 × 50% = $106.50).
Per Diem Deduction Rules and Limitations
1. You must be away from your tax home — typically your primary place of business, overnight 2. You can't claim per diem and actual meal expenses — choose one method per trip 3. No first-year carryover — you must use the actual cost method for the first year you start using per diem 4. Incidental expenses — the per diem includes tips, laundry, and small personal expenses; no separate deduction allowed 5. Lavish or extravagant expenses — even with per diem, the IRS disallows expenses that are "lavish or extravagant" 6. Mixed business/personal travel — per diem must be allocated between business and personal days
Which Per Diem Rate to Use
The IRS allows two approaches: 1. Standard Per Diem Rate (GSA rates): - Use the location-specific lodging rate for each city - Use $71/day for meals (or the locality-specific M&IE rate) - Lodging requires receipts over $75 2. High-Low Method: - $71/day for meals + lodging rate for high-cost cities - $71/day for meals + $107/day for standard localities ( lodging — use actual receipts) - Simpler but may under-deduct in very expensive cities
How to Claim Per Diem Deductions
1. Track your travel dates and locations — keep a simple log: "March 5-7, San Francisco, client project" 2. Keep lodging receipts — always required (even if under the per diem rate) 3. Calculate per diem — multiply the daily meals rate by the number of travel days 4. Enter on Schedule C — Line 31 (travel) and Line 32 (utilities for meals) 5. Note the 50% limit on meals — only 50% of the meals per diem is deductible Stop drowning in meal receipts. Start your free Eonebill trial to track your business travel expenses effortlessly — per diem or actual cost, Eonebill helps you maximize every legitimate deduction. Planning a business trip? Learn about the home office deduction and how to document business expenses correctly. View Pricing → | Glossary Home → | Home →