Per diem is a fixed daily allowance employers pay to cover meals, lodging, and incidental expenses during business travel. The rate depends on the travel destination, with the U.S. General Services Administration publishing location-specific rates annually. Navan automates per diem calculations by matching trip itineraries to the applicable GSA or company-set rate.

Are per diem payments taxable?

Per diem is tax-free for employees when it follows IRS accountable plan rules: the travel must have a business purpose, the employee must substantiate dates and destinations, and excess payments must be returned. If payments exceed GSA rates, the excess becomes taxable income. Navan tracks per diem against rate limits automatically.

Who sets per diem rates in the United States?

The GSA sets rates for the continental U.S., the Department of Defense covers Alaska, Hawaii, and territories, and the State Department covers foreign locations. Rates are updated annually each August. Private companies can set their own rates but many use GSA as a benchmark. Navan supports both GSA and custom per diem rate configurations.

What is the difference between per diem and expense reimbursement?

Per diem pays a flat daily rate regardless of actual spending — no meal receipts needed. Expense reimbursement covers documented costs with receipts required for each purchase. Per diem is simpler to administer but provides less spend detail. Navan supports both models and can apply per diem to meals while tracking actual costs for lodging.

How is per diem calculated for partial travel days?

Travelers typically receive 75% of the meals and incidentals (M&IE) rate on departure and return days, and the full rate on days spent entirely at the destination. This first-and-last-day rule is one of the most common sources of manual calculation errors. Navan calculates partial-day per diem automatically based on itinerary dates.

Do per diem rates cover all travel expenses?

No. Per diem covers meals, lodging, and incidentals (tips, baggage fees, small transit costs). It does not cover airfare, car rentals, conference registration, or other major trip expenses — those are handled separately through direct booking or expense reimbursement. Navan manages both per diem and non-per-diem travel costs in a single platform.

Per diem explained: rates, taxes, and what's covered

Key Takeaways About Per Diem

Per diem (Latin for "per day") is a fixed daily allowance employers pay to cover meals, lodging, and incidental expenses during business travel. Navan automates per diem by connecting daily allowances to trip itineraries, replacing the manual process of collecting receipts for every coffee and cab ride with a flat rate based on destination.

The U.S. General Services Administration (GSA) sets per diem rates annually for the continental U.S., with about 300 non-standard areas receiving individual rates based on local hotel costs.
Meals and Incidental Expense (M&IE) rates in the U.S. range from $68 to $92 per day depending on the city, while lodging rates vary far more dramatically, from under $100 in rural areas to $300+ in Manhattan or San Francisco.
Navan automates per diem tracking by connecting daily allowances to trip itineraries, eliminating the manual calculation of partial-day rates and destination lookups.
Per diem that follows IRS "accountable plan" rules is tax-free for employees and deductible for employers, but only if the rates don't exceed GSA limits.
71% of travelers spend 30+ minutes filing expense reports (Skift and Navan 2026 survey). Per diem eliminates most of that paperwork for meals and incidentals.

What Is Per Diem?

Per diem is a daily allowance paid by an employer to cover an employee's living expenses while traveling for business. The term comes from the Latin phrase meaning "for each day." Rather than requiring travelers to document every individual meal, tip, and taxi ride, per diem replaces itemized receipts with a flat rate tied to the travel destination.

The concept serves two purposes: it simplifies expense administration for finance teams, and it gives travelers predictable spending power without the friction of collecting and submitting receipts for small purchases.

How GSA per diem rates work

In the United States, the General Services Administration (GSA) publishes official per diem rates annually, typically in mid-August, for the upcoming federal fiscal year starting October 1. These rates cover two components:

Lodging: Based on average daily hotel rates (ADR) in each location. The GSA surveys hotel pricing data and sets a maximum reimbursable nightly rate. For FY2025, standard lodging is $107/night, but non-standard areas like New York City, San Francisco, and Washington D.C. carry rates of $200-$350+.
Meals & Incidental Expenses (M&IE): A tiered system from $68 to $92 per day depending on the cost of living. The M&IE breakdown specifies amounts for breakfast, lunch, dinner, and incidentals separately — important for calculating partial-day travel.

While GSA rates are mandatory for federal employees, private-sector companies are free to set their own per diem policies. Many use GSA rates as a benchmark because they're defensible, well-researched, and automatically satisfy IRS accountable plan requirements.

The first-and-last-day rule

Travelers typically receive 75% of the M&IE rate on travel days (the day of departure and the day of return) and the full rate on days spent entirely at the destination. This partial-day calculation is one of the most common sources of confusion — and manual error — in per diem administration.

Per diem vs. actual expense reimbursement

Companies choose between two reimbursement approaches:

Per diem: How it works: Fixed daily rate regardless of actual spend / Best for: High-volume travel programs where receipt collection creates friction
Actual expense: How it works: Reimburse documented costs up to a cap / Best for: Organizations needing granular spend data or traveling to locations with extreme cost variation

Per diem trades granularity for efficiency. A company using per diem won't know whether an employee spent $15 or $75 on dinner — it only knows the daily allowance was paid. Actual expense reimbursement provides that granularity but at the cost of 71% of travelers spending 30+ minutes per expense report .

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Tax treatment of per diem

Per diem payments are tax-free for employees and deductible for employers, but only when structured as an IRS "accountable plan." The three requirements:

Business connection: The travel must have a clear business purpose.
Substantiation: The employee must report the date, destination, and business purpose of each trip (though individual meal receipts are not required).
Return of excess: If the trip is shorter than planned, any unspent per diem must be returned to the employer.

If per diem exceeds GSA rates, the excess is treated as taxable income. If the arrangement doesn't meet accountable plan rules, the entire per diem amount becomes taxable wages — a common trap for companies that pay per diem informally without proper documentation.

International per diem

The U.S. State Department publishes separate per diem rates for foreign locations, updated monthly. These rates account for local cost of living, exchange rate fluctuations, and seasonal price changes. A business traveler in Tokyo faces a different M&IE rate than one in rural India, and the gap can be dramatic.

For companies with global travel programs, managing per diem across dozens of countries with different rate sources, currencies, and tax rules is a significant administrative burden. Navan automates this by matching itinerary destinations to the applicable per diem rate automatically, including the first-and-last-day partial calculation.

When per diem rates fall short

GSA rates are based on hotel survey averages, which means they can lag behind reality in cities experiencing rapid price inflation. Travelers to cities where events, conferences, or seasonal demand spike hotel prices often find the per diem lodging cap insufficient — forcing them to either pay the difference out of pocket or book inconvenient locations farther from the business destination.

The incidentals portion of M&IE (tips, baggage fees, transit costs) was unchanged in the federal system for over two decades before a 2025 increase from $17.30 to $25. Private companies benchmarking against GSA should evaluate whether federal rates reflect actual costs in their employees' most common destinations. Companies using Navan's business travel platform can set custom per diem rates by destination and have them enforced automatically.

Expense Report: The documentation that per diem partially replaces — per diem eliminates itemized meal receipts but still requires trip-level reporting.
Corporate Card: The payment method that captures actual spend data; companies using per diem for meals often still use corporate cards for lodging and transport.
Duty Free: A retail category travelers encounter during international trips where per diem rates apply.
Travel Management Company: The service provider that can integrate per diem rate management into the booking and expense workflow.

Frequently Asked Questions About Per Diem

Per diem is a fixed daily allowance employers pay to cover meals, lodging, and incidental expenses during business travel. The rate depends on the travel destination, with the U.S. General Services Administration publishing location-specific rates annually. Navan automates per diem calculations by matching trip itineraries to the applicable GSA or company-set rate.
Per diem is tax-free for employees when it follows IRS accountable plan rules: the travel must have a business purpose, the employee must substantiate dates and destinations, and excess payments must be returned. If payments exceed GSA rates, the excess becomes taxable income. Navan tracks per diem against rate limits automatically.
The GSA sets rates for the continental U.S., the Department of Defense covers Alaska, Hawaii, and territories, and the State Department covers foreign locations. Rates are updated annually each August. Private companies can set their own rates but many use GSA as a benchmark. Navan supports both GSA and custom per diem rate configurations.
Per diem pays a flat daily rate regardless of actual spending — no meal receipts needed. Expense reimbursement covers documented costs with receipts required for each purchase. Per diem is simpler to administer but provides less spend detail. Navan supports both models and can apply per diem to meals while tracking actual costs for lodging.
Travelers typically receive 75% of the meals and incidentals (M&IE) rate on departure and return days, and the full rate on days spent entirely at the destination. This first-and-last-day rule is one of the most common sources of manual calculation errors. Navan calculates partial-day per diem automatically based on itinerary dates.
No. Per diem covers meals, lodging, and incidentals (tips, baggage fees, small transit costs). It does not cover airfare, car rentals, conference registration, or other major trip expenses — those are handled separately through direct booking or expense reimbursement. Navan manages both per diem and non-per-diem travel costs in a single platform.