Is Per Diem Taxable? When It Counts as Income

Per diem is usually not taxable — but only if it follows the IRS "accountable plan" rules. Cross those lines and some or all of it becomes taxable wages reported on your W-2.

Per diem is tax-free when…

• The payment does not exceed the federal per diem rate for that location and date.
• You file an expense report showing the time, place and business purpose of the trip.
• You return any amount paid in advance that exceeds your actual days of travel.

When per diem becomes taxable

If your employer pays more than the federal rate, the excess is taxable. If you never file an expense report (a "non-accountable plan"), the entire per diem is taxable and subject to payroll tax. Flat travel stipends with no substantiation are the most common way per diem accidentally turns into income.

The first-and-last-day catch

Because M&IE is only paid at 75% on your first and last travel day, paying a full day's M&IE on those days technically overshoots the federal rate. A compliant calculator applies the 75% rule automatically so the total stays inside the tax-free limit.