If you’re a frequent business traveler or manage travel reimbursements for your team, you’ve probably come across the term “per diem”. When tax season rolls around, though, you might wonder: Is per diem taxable?
Let’s break down how per diem affects your tax return, when it’s considered taxable income and how to properly claim it.
What Is Per Diem?
Per diem provides employees a daily allowance for business travel expenses, typically covering:
- Meals and incidental expenses (M&IE)
Rather than submitting receipts for every meal or cab ride, employees receive a fixed daily rate. This streamlines expense tracking and simplifies reimbursement.
Is Per Diem Taxable Income?
In most cases, per diem is not taxable. However, whether or not it’s considered taxable income depends on several factors:
- The amount does not exceed the federal per diem rate.
- The employee provides a business purpose for the travel.
- An expense report is submitted in a timely manner.
- When these conditions are met, per diem remains non-taxable and won’t show up as income on your W-2.
When Is Per Diem Taxable?
There are situations where per diem payments become taxable, including:
- The amount exceeds IRS-approved rates.
- No expense report is filed.
- The employer uses a flat daily allowance without requiring documentation.
In these cases, the IRS treats per diem as taxable income, requiring reporting on your W-2 or 1099. You’ll likely owe taxes on any excess or undocumented amount.
How Does Per Diem Affect Taxes?
Here’s a breakdown of how per diem interacts with tax reporting:
- Under federal rate with report: not taxable and not reported on W-2.
- Over federal rate without report: taxable and reported on W-2.
- Flat per diem without substantiation: taxable and reported on W-2.
For contractors receiving per diem through a 1099, these payments count as self-employment income and are fully taxable.
How to Claim Per Diem on Taxes
If your employer doesn’t reimburse you for travel expenses, you may be eligible to claim per diem as a deduction—but only if you’re self-employed. Following the 2018 tax law changes, W-2 employees can no longer deduct unreimbursed business expenses on federal returns.
To claim per diem as a self-employed taxpayer:
- Use IRS Publication 463 for guidelines.
- Keep a travel log showing business purpose, dates, and destinations.
- Use the GSA per diem rates to determine allowable deductions.
- Report the deduction on Schedule C of your tax return.
Does Per Diem Appear on a W-2 Forms?
Non-taxable, properly documented per diem payments won’t appear on your W-2. However, any taxable portion (such as amounts over the allowable rate or undocumented payments) will appear in Box 1 of your W-2 as wages.
Stay Compliant, Stay Tax-Savvy
Per diem offers a tax-friendly approach to manage business travel —but only if you follow IRS rules. To stay on the right side of tax regulations:
- Keep accurate travel records.
- Submit timely expense reports.
- Stay within government-approved per diem rates.
If you’re unsure about how per diem applies to your taxes, it’s a good idea to consult a tax professional. And if you want to streamline your company’s per diem and expense reporting, ExpensePoint can help. Our platform automates the process, keeps you compliant and saves time.
Quick FAQs
Is per diem pay taxable?
Only if it exceeds the IRS rate or lacks proper documentation.
Does per diem count as income?
Yes—if it doesn’t meet IRS requirements for non-taxable treatment.
Is per diem reported on taxes?
It depends. Non-taxable per diem is not reported. Taxable per diem appears on W-2 or 1099.
Can I claim per diem on my taxes?
Only if you’re self-employed and not reimbursed by an employer.
