How Is Per Diem Calculated on Travel Days?

Business travel expenses can add up fast, and managing per diem rates correctly is crucial for compliance and cost control. But how do you determine the right per diem when employees travel for only part of the day?

The IRS allows reduced per diem rates for travel days—typically 75% of the standard rate. But should your company follow this, or set its policy? Are your travelers aware of what’s covered—meals, lodging, or incidentals?

More importantly, does your per diem travel policy encourage cost-effective travel decisions? Could an automated system help reduce expense fraud or improve compliance?

Before your next business trip policy review, ask:

• Are we aligning per diem rates with actual travel costs?
• Do employees know what qualifies for reimbursement?
• Can we simplify per diem tracking with automation?

This guide breaks down how per diem is calculated on travel days, the IRS guidelines, and what you need to know to ensure you receive the correct reimbursements.

What Is Per Diem?

Per diem is a fixed daily rate that covers expenses like meals and lodging while traveling for business. Companies set their own per diem travel policies, but most follow the federal per diem rates for travel days established by the U.S. General Services Administration (GSA). These rates vary by location and are adjusted annually.

Per diem rates are divided into three categories:

• Lodging: Covers hotel stays or other accommodations.
• Meals: Includes breakfast, lunch, and dinner.
• Incidental Expenses: Covers small costs such as tips for service staff.

Special Rules for Travel Days

Travel days, meaning the first and last days of your trip, have different per diem calculations than full travel days. The reason? These days, you typically do not incur a full day’s worth of expenses.

IRS Guidelines for Travel Day Per Diem

The IRS allows employers to reimburse per diem travel at a reduced rate for travel days. According to IRS guidelines, the per diem meal rate for travel days is 75% of the standard daily rate for the location.

For example, if the full per diem rate for meals in a city is $64, the per diem for travel days would be:

Lodging per diem is usually reimbursed at the actual cost or the full GSA rate if the employer follows a standard per diem travel policy.

Per Diem for Major U.S. Cities 2025

Per diem rates differ by city and state. High-cost cities like New York, San Francisco, and Washington, D.C., have higher per diem rates compared to smaller towns. 

Example of Per Diem Calculation on Travel Days

Let’s say you are traveling for business from New York to Chicago. The GSA per diem rates for Chicago are:

• Lodging: $194 per night
• Meals: $86 per day
• Incidental Expenses: $5 per day

Day 1: Departure from New York to Chicago

• Lodging: $194 (1 night)
• Meals (75% of $86): $64.50
• Incidental Expenses (75% of $5): $3.75
• Total for Day 1: $262.25

Day 2: Full Business Day in Chicago

• Lodging: $194 (1 night)
• Meals: $86 (Full rate)
• Incidental Expenses: $5
• Total for Day 2: $285

Day 3: Return to New York

• Lodging: $0 (checking out)
• Meals (75% of $86): $64.50
• Incidental Expenses (75% of $5): $3.75
• Total for Day 3: $68.25

Grand Total for the Trip

• Lodging: $388 (2 nights)
• Meals: $215
• Incidental Expenses: $12.50
• Total Cost: $615.50

How Employers and Travelers Should Handle Per Diem?

Employers

• Clearly define per diem travel policies in your travel expense policy.
• Use GSA rates as a guideline or establish a company-specific policy.
• Ensure compliance with IRS regulations to avoid tax issues.

Business Travelers

• Check your company’s per diem policy before traveling.
• Keep records of travel dates and destinations for accurate reimbursements.
• Be aware of location-based rates, as some cities have higher per diem travel allowances.

Per Diem vs. Actual Expenses

Some companies allow travelers to choose between per diem and actual expense reimbursement. While per diem for travel days simplifies expense reporting, actual expenses might be more beneficial if your meals and lodging are below the daily allowance.

For example:

• If your company offers $84 for meals but you only spend $40, you still receive the full $84 under per diem.
• If you opt for actual expenses, you would only be reimbursed for $40.

Tax Implications of Per Diem

Per diem travel payments are not taxable if they do not exceed IRS rates and are properly documented. However, any excess reimbursement is considered taxable income.

To ensure compliance:

• Use an accountable plan where expenses are reported with dates, locations, and purposes.
• If per diem exceeds IRS rates, the excess amount should be included in taxable income.

Best Practices for Business Travelers

• Review Per Diem for Travel Days in Advance: Check the GSA website or your company’s policy to know your daily allowances.
• Track Your Travel Dates and Expenses: Keep a record of departure and return times to ensure correct per diem calculations.
• Use Company Travel Management Tools: Some companies use software to automate per diem calculations.
• Follow IRS Guidelines: This helps in avoiding tax liabilities and ensures smooth reimbursement.

Maximize Your Per Diem: Smart Business Travel Planning Made Easy

Understanding how per diem rates for travel days are calculated on travel days helps business travelers ensure they are fairly reimbursed for meals and lodging while staying compliant with company policies. By following IRS guidelines and company policies, you can make the most of per diem allowances without tax complications.

Before your next business trip, check your company’s per diem travel rules, track your travel days, and use these insights to maximize your reimbursement.

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