New IRS per diem rates in effect as of October 1

ARTICLE | October 01, 2026

Each fall, the IRS updates its special per diem rates for business travel. Companies that miss the changes can end up applying outdated rates once the year-end transition period ends, and run into problems substantiating deductions. The 2026-2027 update is a good reason to check your rates and review how your travel expense program works.

The IRS released Notice 2026-60 on September 24, announcing rates for October 1, 2026, through September 30, 2027. Under the high-low substantiation method, the daily rate for high-cost localities rises from $319 to $329. The rate for other locations in the continental United States increases from $225 to $230. An extra $10 or $5 a day may seem small, but it adds up for businesses whose employees travel often, especially to high-cost destinations. Those increases can affect both reimbursement costs and tax deductions.

How per diem works

Per diem rates are fixed daily allowances for lodging, meals, and incidental expenses when employees travel away from home on business. They reduce the need to track and document each actual expense while satisfying the substantiation requirements under Section 274(d) of the Internal Revenue Code.

Employers generally choose between two methods. The standard federal per diem method uses location-specific rates published by the General Services Administration (GSA). The high-low substantiation method, a popular choice among private-sector employers, uses one rate for IRS-designated high-cost localities and another for all other locations in the continental United States. For companies with employees traveling to many destinations, having two rates makes administration easier.

Businesses can also reimburse actual expenses if employees keep adequate records and documentation. Per diem is optional, but for most organizations it reduces paperwork, makes costs more predictable for employers and employees, and helps support reimbursements during an audit.

What changed for 2026-2027

Although the total high-low rates increase to $329 and $230, the meals and incidental expenses (M&IE) portions remain at $86 for high-cost localities and $74 for other continental U.S. localities. These amounts matter when applying the meals deduction limitation under Section 274(n).

The transportation industry’s special M&IE rates also stay the same: $80 for travel within the continental United States and $86 for travel outside it. These rates apply to employees and self-employed individuals whose work directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and regularly requires travel away from home that usually involves travel to localities with differing federal M&IE rates. The rates in this category are unchanged from last year.

The incidental expenses-only deduction rate remains $5 per day for travel both within and outside the continental United States. The high-cost locality list has also changed. These localities have a federal per diem rate of at least $280, and the IRS updates the list annually to reflect local market conditions. Four locations join the list for 2026-2027, though only one qualifies year-round:

• Tucson, Arizona (January 1 – March 31)
• San Mateo/Foster City/Belmont, California (year-round)
• Albuquerque, New Mexico (October 1 – March 31)
• Cody, Wyoming (June 1 – September 30)

Outside those periods, travel to these locations uses the $230 rate. Panama City, Florida, has been removed. Fifteen localities also have changes to the months in which they qualify as high-cost. Those locations include Aspen, Colorado; New York City; Philadelphia; and Hilton Head, South Carolina. If your employees travel to these areas, check the qualifying dates and the destination.

Does your reimbursement policy still fit your business?

Updating the rates is also a chance to revisit the reimbursement method you use. Many businesses set up a per diem policy years ago and have continued using it even as their workforce, clients, and travel patterns have changed.

If most of your employees’ travel is concentrated in a few markets, the federal method may offer more precise and potentially more favorable reimbursement amounts for those destinations. If employees travel throughout the country, the high-low method is usually easier to manage. Reassess that choice periodically to make sure it still suits your business. Keep in mind that the choice can’t be switched freely mid-year: an employer that uses the high-low method for an employee generally must use it for all of that employee’s travel within the continental United States for the rest of the calendar year.

CFOs and controllers should also compare their reimbursement rates with the applicable IRS limits. Amounts paid above the per diem limit that employees don’t substantiate or return are taxable wages, which creates additional payroll tax obligations for employers. Paying too little can affect morale and retention, particularly as business travel has rebounded and travel costs in high-cost cities continue to rise.

Administration matters too. A per diem program provides the intended substantiation benefits only when the business applies the correct rate to the correct locality and travel dates. Employees still need to document the time, place, and business purpose of their travel. Missing records or inconsistent application of the rules may lead the IRS to treat reimbursements as ordinary employee income, leaving the business exposed to penalties and back taxes.

What finance teams should review now

The new rate period began on October 1st. Finance and accounting teams should check their policies and expense systems against the applicable rates and transition rules.

Start with your expense management system and policy documentation. Update the high-low rates to $329 and $230, and check that the system uses the high-cost locality list in Notice 2026-60. Pay particular attention to newly added locations and changes in qualifying months, which are common sources of errors during the transition.

Next, tell employees and managers who submit or approve expense reports what has changed. Travelers heading to Tucson, Albuquerque, or Cody during those cities’ high-cost months, or to San Mateo at any time, may see different allowances. Explain when the changes apply, and distribute an updated travel policy if your company maintains one. Clear instructions can prevent reimbursement disputes and save time for everyone handling the reports.

Finally, review the transition provisions under Rev. Proc. 2019-48 for October 1 through December 31, 2026. An employer that used the high-low method for an employee earlier in 2026 must continue using it for that employee through December 31. For those last three months, the employer may apply either the prior year’s rates and locality list or the new ones, as long as it applies its choice consistently. Understanding these rules helps avoid errors during the changeover.

Make annual updates easier

Because the meals and incidental portions are unchanged, the increases of $10 for high-cost localities and $5 for other localities fall entirely on the lodging portion of the rates, reflecting continued growth in hotel costs. Build enough flexibility into your policy to adjust rates each year without rewriting the entire program.

That also means reviewing your expense software, policy documentation, and employee training. The IRS revises its high-cost locality list annually, and the rules are unlikely to become simpler. Clear processes that staff can follow and update will make future changes easier to manage.

Whether you have a few traveling employees or manage travel across many cities, check how your business is handling the new rate period. Our advisors can help you review the updated rates, assess your reimbursement method, and develop a travel expense policy that supports compliance and works for your employees. Contact our firm to discuss your current policy and the changes your business may need.