How Per Diem Actually Works

A per diem is a flat daily allowance instead of itemized receipts. Here’s whether you keep the leftovers, how it’s taxed, and whether it covers your hotel — plainly, with the IRS and GSA rules linked.

Per diem is one of the more misunderstood parts of a work trip. Here’s how it actually works — including the tax treatment — with the primary sources linked, not a vendor’s pitch.

General information — rules and policies change. Confirm current specifics with the relevant authority (your company, the airline, the government) or a professional. Where a public rule applies, its primary source is linked.

Can I keep leftover per diem money?

Often yes: under a per-diem accountable plan, if the allowance is at or below the federal rate and you substantiate the travel days, you generally keep the unspent portion tax-free — you don’t have to return the difference the way you would with actual-expense reimbursement. Your company’s plan can be stricter, so confirm. Source: IRS Publication 463 ↗.

How is a per diem taxed?

A per diem paid under an accountable plan, up to the federal rate and properly substantiated, is not taxable income. Anything above the federal rate — or a per diem paid without substantiation, which makes it a non-accountable plan — is taxable and shows up on your W-2. Source: IRS Publication 463 ↗.

Does per diem cover hotels too?

It can — a full per diem has two parts: a lodging allowance and a meals-and-incidental (M&IE) allowance. But many companies pay lodging on actual cost and give a per diem only for meals, so check which model yours uses. The GSA publishes both rates by city each year. Source: GSA per diem rates ↗.

How do I ask for a higher per diem?

Point to the published federal (GSA) rate for your destination — high-cost cities carry higher rates — and make the case that the standard allowance doesn’t cover a specific, documented reality there. It’s a policy conversation with finance, benchmarked to a real, lookup-able number. Source: GSA per diem rates ↗.

More answers for the road in the Field Guide.