The IRS has announced special per diem rates that can be used to substantiate the amount of business expenses incurred for travel away from home on or after October 1, 2025. (Notice 2025-54, Sept. 23, 2025) Employers using these rates to set per diem allowances can treat certain categories of travel expenses as substantiated without requiring that employees prove the actual amount they spent. (Employees must still substantiate the time, place, and business purpose of their travel expenses.) The amount deemed substantiated will be the lesser of the allowance actually paid or the applicable per diem rate for the same set of expenses. This notice, which replaces IRS Notice 2024-68, announces rates and the list of high-cost localities for use under the optional high-low substantiation method, special rates for transportation industry employers, and the rate for taxpayers taking a deduction only for incidental expenses. General guidance issued in 2019 regarding the use of per diems after the Tax Cuts and Jobs Act remains in effect.
For travel within the continental United States, the optional high-low method designates one per diem rate for all high-cost locations and another for all other locations. Employers can use the high-low method for substantiating lodging, meals, and incidental expenses, or for substantiating meal and incidental expenses only (M&E). Beginning October 1, 2025, the high-low per diem rate that can be used for lodging, meals, and incidental expenses remains at $319 for travel to high-cost locations and $225 for travel to other locations. The high-low M&E rate remains at $86 for travel to high-cost locations and $74 for travel to other locations. There are no changes to the list of high-cost locations or to the calendar periods for those locations for the period October 1, 2025, to September 30, 2026.
While self-employed persons cannot use the high-low method, they may use other per diem rates to compute the amount of their business expense deduction for business meals and incidental expenses (but not lodging), or for incidental expenses alone. (Employees can no longer deduct their unreimbursed expenses due to the suspension of miscellaneous itemized deductions (as established by the Tax Cuts and Jobs Act and made permanent by the Act (formerly referred to as the One Big Beautiful Bill or OBBB)), so these other rates are effectively unavailable to them.) The special rate for the incidental expenses deduction is unchanged at $5 per day.
EBIA Comment: The per diem rules can greatly simplify the process of substantiating business travel expense amounts. If the amount of an allowance is deemed substantiated because it does not exceed the applicable limit, any unspent amounts do not have to be taxed or returned. If an employer pays per diem allowances that exceed what is deemed substantiated, however, the employer must either treat the excess as taxable wages or require actual substantiation. If substantiation is required, any unsubstantiated portion of the allowance must be returned or treated as taxable wages. For more information, see EBIA’s Fringe Benefits manual at Section XXI.G (“Travel Expense Reimbursements: Substantiation”).
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