Beginning October 1, 2025, the Internal Revenue Service (IRS) is rolling out updated per diem rates for business travel to reflect rising lodging, meals, and incidental costs.
These new allowances provide higher daily caps for lodging, meals & incidental expenses (M&IE), and special rates for the transportation industry.
For businesses, self-employed workers, and employees on official travel, these changes help simplify travel expense reimbursement while staying IRS-compliant.
In this article, we explore every detail of the 2025 IRS per diem rates, breakdowns by locality, special rules, and how to use them properly in your tax and accounting practices.
Per diem is a daily allowance set by IRS rules that covers lodging, meals & incidental expenses (M&IE) such as tips, and minor personal costs when traveling away from your tax home for business.
When used correctly, per diem lets employers reimburse travel costs without requiring receipts (up to the allowed rate), and keeps excess amounts non-taxable to the employee.
For tax purposes, the IRS requires travelers to substantiate the time, place, and business purpose of the trip, but not necessarily every meal receipt, provided per diem rules are followed.
The IRS issued Notice 2025-54, which raises several per diem rates effective October 1, 2025. Here are the significant updates:
- The special per diem rates for the transportation industry now stand at $80 per day for travel in the continental U.S. (CONUS), and $86 per day outside CONUS for M&IE.
- The incidental expense only deduction rate remains fixed at $5 per day for any location.
- The High-Low substantiation method continues, with $319 per day for high-cost localities, and $225 per day for all other CONUS areas. The portions of those amounts allocated to meals are $86 for high-cost areas and $74 for others.
These adjustments are designed to keep pace with inflation, rising hotel rates, and general cost increases in travel expenses.
| Rate Category | Allowance | Description / Notes |
|---|---|---|
| High-cost localities (High-Low method) | $319/day | For designated high-cost U.S. cities or counties |
| Other localities (High-Low) | $225/day | Applies to most standard U.S. locations |
| M&IE portion — High-cost | $86 | The part of the $319 rate considered meals & incidental |
| M&IE portion — Other localities | $74 | The meals & incidental part of $225 rate |
| Incidental-only deduction | $5/day | Flat rate for incidental expenses alone |
| Transportation industry M&IE (CONUS) | $80/day | For eligible travel industry workers in U.S. |
| Transportation industry M&IE (OCONUS) | $86/day | For eligible workers outside continental U.S. |
To understand the change:
- Previously, the High-Low rates were $319 (high) and $225 (other) under Notice 2024-68. The 2025 notice keeps those levels but shifts how much is allocable to meals & incidental.
- The meals & incidental portions have increased: from $86 for high-cost locations and $74 for other localities, which were lower previously under the old allocation method.
- The lodging portion (the difference between the total rate and M&IE) effectively adjusts to support modern room costs.
Thus, while the headline $319 / $225 numbers remain, the internal makeup and usability in reimbursements and deductions have been updated.
- High-Low method: widely used by businesses for simplicity, just choose whether a location is “high-cost” or “other.”
- Standard method: use exact per diem for each city (via GSA or IRS locality tables).
- Incidental-only: for trips when lodging is paid separately.
For the first and last travel days, only 75% of the M&IE portion is allowed, not the full rate.
If you qualify under the transportation industry (truckers, bus, etc.), use the special rates ($80 / $86) for meals & incidentals only.
Even with per diem, you must keep trip logs, showing dates, location, purpose, and number of days.
If the per diem paid exceeds the IRS rate, the excess is treated as wages and subject to income tax (unless properly substantiated).
- Cost alignment: With travel costs rising, existing per diem allowances often fell short in covering real expenses.
- Employer compliance: Using updated rates helps businesses stay within IRS safe harbor rules for nondeductible reimbursements.
- Simplification: Travelers and accounting teams get a clearer, predictable framework for travel expense reimbursement.
- Sector fairness: Specialized industries (transportation) get tailored allowances reflecting their unique travel burdens.
For many businesses and frequent travelers, these changes will have a tangible effect on budgets and reimbursements.
The IRS’s updated per diem rates for 2025 (effective October 1, 2025) provide a crucial adjustment to reflect current travel cost realities.
With top rates of $319/day in high-cost areas and $225/day in standard zones, plus revised M&IE allocations, special transportation industry rates, and consistent incidental allowances, these changes offer greater clarity and fairness for business travelers and employers alike.
If you manage travel policies or frequently travel for work, make sure your reimbursement systems, accounting policies, and tax records incorporate these new rates to optimize compliance, budgeting, and employee satisfaction.
See also Official Social Security COLA Announcement Coming Late October
They become effective October 1, 2025, meaning travel expenses on or after that date should use the new rates.
No — employers can use them or pay actual expenses. But using IRS-approved rates ensures the reimbursements remain non-taxable to employees (within limits).
You can only claim 75% of the M&IE portion for the first and last travel day, not the full meal & incidental rate.
