What is Per Diem?

Per diem is a Latin phrase meaning 'per day.' In a business context, per diem refers to a daily allowance paid to an employee or contractor for expenses incurred while traveling for work, such as meals, lodging, and incidentals. Instead of requiring travelers to submit receipts for every expense, many companies pay a standard daily rate -- the per diem -- to cover anticipated costs. For freelancers and independent contractors, per diem can appear in two contexts: as a reimbursement arrangement with clients who pay you a daily rate for travel expenses, and as a tax simplification tool that allows self-employed individuals to deduct a standard daily meal allowance when traveling for business instead of tracking every meal receipt.

Per diem works as a standardized payment for daily expenses. The federal government sets per diem rates for different locations that change annually -- the General Services Administration (GSA) publishes rates for domestic travel, while the Department of Defense and State Department publish rates for foreign locations. For 2024, standard federal per diem rates are $166 per day ($107 for lodging, $59 for meals and incidentals), with higher rates for expensive cities like New York, San Francisco, or Washington D.C. Freelancers who travel for client work can use the federal meal and incidental expense (M&IE) rate as a daily meal deduction instead of tracking receipts, simplifying recordkeeping. For the meal deduction, self-employed individuals can deduct 50% of the standard M&IE rate for each travel day.

For freelancers and small business owners, per diem matters in two practical situations. First, when clients reimburse your travel expenses, they may offer a per diem rate rather than reimbursing actual receipts -- this simplifies the paperwork for both parties. Second, when you travel for business and want to deduct meal expenses, using the federal M&IE per diem rate rather than tracking every receipt is an IRS-approved simplification. To use the federal M&IE rate, you must be traveling away from your tax home (your regular place of business) overnight. The 50% meal deduction limitation applies whether you use actual receipts or the per diem rate. Lodging expenses must generally be documented with actual receipts, even if you use per diem for meals.

Per diem is a fixed daily allowance for travel-related expenses -- it is a simplification that eliminates the need to track every expense receipt. Actual expense reimbursement requires submitting receipts for every expense incurred -- meals, transportation, hotel, parking -- and receiving reimbursement for the exact amounts documented. Actual expense reimbursement can result in higher reimbursement if actual costs exceed the per diem rate, but it requires more administrative effort. Per diem is simpler and more predictable. For freelancers who travel frequently and whose actual expenses are close to the federal per diem rates, the simplicity of per diem reimbursement and deduction is often the better approach. For freelancers whose actual expenses are significantly higher or lower than per diem, actual expense tracking may be more advantageous.

To apply per diem rates to your work: First, determine whether you are using per diem for client reimbursement or for your own tax deduction. Second, for client reimbursement: negotiate a per diem rate in your contract -- reference the applicable GSA per diem rate for the travel location as a benchmark. Third, for tax purposes: look up the federal M&IE rate for your travel destination on the GSA website. Fourth, for each qualifying travel day (away from home overnight for business), you can deduct 50% of the M&IE rate without receipts for meals. Fifth, document your travel: dates, destinations, business purpose, and departure and return times. Sixth, for lodging, track actual receipts even if you use per diem for meals. Seventh, include any per diem reimbursements you receive from clients in your gross income -- they are taxable unless you account for them properly.

Eonebill makes it easy to include per diem and travel expense line items on your client invoices. When your contract provides for per diem reimbursement, document each travel day clearly on your invoice with the location, date, and applicable rate. Our [free invoice generator](/free-tools/invoice-generator) supports custom line items for travel and expense billing, and [Eonebill pricing](/pricing) includes tools that help you track reimbursable expenses alongside your service fees.

1. Confusing per diem for meals with the actual lodging deduction -- the per diem simplification applies to meals and incidentals; lodging generally requires actual receipts. 2. Not documenting the business purpose of travel -- even when using per diem rates, you must document that the travel was for a legitimate business purpose. 3. Deducting the full per diem meal amount without applying the 50% limitation -- self-employed individuals can only deduct 50% of meal expenses, whether actual or per diem. 4. Not including per diem reimbursements in income -- reimbursements received from clients are generally taxable unless under an accountable plan; consult a tax professional. 5. Using a per diem rate that exceeds the federal rate without proper documentation -- if you negotiate a per diem above the federal rate with a client, the excess may be treated as taxable income.

Learn more about related topics: [Mileage Deduction](/glossary/mileage-deduction), [Billable Hours](/glossary/billable-hours), [Job Costing](/glossary/job-costing), [Retainer Agreement](/glossary/retainer-agreement).