If you’ve ever traveled for work and heard someone mention “per diem,” the concept is simpler than the term makes it sound. Per diem just means “per day,” and in a business context, it refers to a fixed daily allowance for travel costs instead of tracking every single receipt.
Quick answer: a per diem rate is a set daily amount covering lodging, meals, and incidental expenses while traveling for business. The 2026 standard federal rate for most of the continental US is $178 per day ($110 for lodging, $68 for meals and incidentals), though rates run higher in specific cities. Below is how it actually works and when it makes sense for a small business to use it.
What a per diem rate actually covers
A per diem rate bundles two categories of travel cost. Lodging covers the hotel or accommodation for the night. Meals and incidental expenses, usually written as M&IE, covers food for the day plus small costs like tips for hotel staff or baggage handling. Some organizations pay lodging and M&IE as one combined daily rate; others split them, reimbursing actual lodging cost separately while using a flat M&IE rate for meals.
Where per diem rates come from
In the US, the General Services Administration (GSA) sets standard per diem rates every fiscal year for federal employee travel, and a large share of private businesses use the same rates as a practical benchmark, since they’re publicly published, updated annually, and defensible if a rate is ever questioned.
For fiscal year 2026 (October 1, 2025 through September 30, 2026), the standard CONUS (continental US) rate is $178 per day: $110 for lodging and $68 for meals and incidentals. This is the default rate for locations without a specifically listed higher rate. Certain cities and regions, generally higher cost-of-living areas, have their own published non-standard rates that run higher, with M&IE alone ranging from $68 to $92 depending on location.
Why a business would use per diem instead of actual expenses
It removes the need to collect every receipt. Instead of an employee or contractor saving a hotel bill, three meal receipts, and a tip record for a single travel day, a per diem rate covers all of it as one number. This cuts down meaningfully on the admin burden of expense reporting, both for the traveler and whoever processes the reimbursement afterward.
It’s predictable for budgeting. Knowing the daily rate in advance makes it straightforward to estimate the total cost of a trip before it happens, since the number doesn’t depend on which restaurant someone picks or how their hotel bill compares to a colleague’s.
It stays outside taxable income, within limits. If a per diem payment doesn’t exceed the federal rate for that location, it’s generally not counted as taxable income to the employee or contractor receiving it. Go above the federal rate and the excess portion typically becomes taxable. This is one of the more commonly misunderstood parts of per diem, so it’s worth confirming with a tax professional before setting an internal policy, especially for a rate structure that differs from the GSA’s own numbers.
How this applies to freelancers and small businesses specifically
A freelancer traveling for a client project can generally deduct actual travel expenses, or use the per diem rate as a simplified way to calculate the deductible amount for meals specifically (the lodging portion generally still needs to be tracked at actual cost for self-employed individuals, this is one of several areas where the rules for employees and the self-employed diverge). A small business reimbursing an employee’s travel can set an internal per diem policy at, at, or below, the GSA rate to keep the reimbursement non-taxable to the employee.
Either way, the practical benefit is the same: less time spent reconciling receipts against actual spend, and a number that’s easy to plan a trip’s budget around in advance.
A simple example
A consultant travels from Chicago to Atlanta for a three-day client engagement. Rather than saving every meal and incidental receipt, they use the GSA per diem rate for Atlanta (a non-standard area with its own published rate, generally higher than the $178 standard CONUS rate) for meals and incidentals, and track their actual hotel cost separately since many self-employed per diem calculations only apply the flat rate to the M&IE portion. At tax time, the meal portion is calculated using the per diem method, while the hotel bill is entered as an actual expense, both categorized and ready without reconstructing three days of miscellaneous receipts from memory.
Where this connects to bookkeeping
Whether a business uses per diem or actual expenses, the travel cost still needs to be recorded and categorized correctly to show up right at tax time. Mixing the two methods inconsistently, or forgetting to log a trip at all, is a common source of messy books. See our guide to small business bookkeeping for beginners for the basics of keeping this organized as you go, and our quarterly estimated tax guide for how travel deductions fit into the bigger picture.
ABsort tracks expenses, including travel, tied to specific clients or projects, so a per diem calculation or an actual-expense receipt logs into the same system instead of a separate spreadsheet, starting at $12/month.
This guide is for general informational purposes and isn’t a substitute for advice from a licensed tax professional, since per diem rules can vary by situation.