Managing employee travel expenses can quickly become a hassle — from collecting endless receipts for meals and hotels to ensuring every reimbursement stays IRS-compliant. Fortunately, the IRS “high-low” per diem method streamlines the process. Instead of reimbursing actual costs, businesses can use standardized daily rates based on whether the travel destination is a high-cost or low-cost area.
In IRS Notice 2025-54, the agency released the latest high-low per diem rates effective October 1, 2025, through September 30, 2026. Here’s what business owners and finance teams should know.
How the High-Low Per Diem Method Works
The per diem approach allows companies to pay employees fixed daily amounts for lodging, meals, and incidental expenses rather than reimbursing every individual receipt. Employees only need to record the time, place, and business purpose of their trip.
As long as payments do not exceed the IRS-approved per diem rates, they are non-taxable and excluded from income and payroll tax withholding.
Under this simplified system:
- High-cost locations receive a higher flat rate established annually by the IRS.
- All other U.S. destinations are considered low-cost areas.
- Employers may use the high-low method in place of city-specific per diem rates.
Some locations, such as New York City, Chicago, Boston, and Los Angeles, are designated as high-cost throughout the year, while others qualify as high-cost only during certain seasons — particularly popular resort destinations where lodging rates fluctuate.
If a company covers hotel costs directly, employees may receive the meals-and-incidentals (M&IE) per diem only. There is also a $5 incidental-expenses-only rate for employees who incur no meal costs during a travel day.
New IRS Per Diem Rates for 2025–2026
Beginning October 1, 2025, the IRS has set the following high-low per diem rates for travel within the continental United States (CONUS):
- High-cost areas: $319 total
- $233 for lodging
- $86 for meals & incidentals
- Low-cost areas: $225 total
- $151 for lodging
- $74 for meals & incidentals
Employers must continue using the same reimbursement method for an employee throughout the 2025 calendar year — switching methods mid-year isn’t permitted. Additionally, per diem payments cannot be issued to employees who own 10% or more of the business.
Why Review Your Travel Reimbursement Policy Now
With the new rates in effect, this is the perfect time to re-evaluate your company’s travel reimbursement policy before 2026 begins. Transitioning from an “actual expense” model to a per diem system can:
- Reduce administrative burden for accounting and HR staff
- Simplify recordkeeping and minimize audit risk
- Ensure tax compliance with IRS reporting standards
- Save employees time while maintaining transparency
Partner with Experts Who Understand IRS Compliance
Implementing the per diem method correctly can lead to significant time savings and fewer compliance headaches. At Botwinick & Co, our team of tax professionals can help your business:
- Determine which method best fits your needs
- Set up compliant travel reimbursement policies
- Maintain proper documentation for IRS audits
If you have questions about the 2025–2026 high-low per diem rates or need help designing efficient reimbursement procedures, contact Botwinick & Co today for expert tax and accounting guidance.
