Per diem rates after October 1, 2026: 8 rules employers miss

The IRS has published Notice 2026-60, which sets the special per diem rates for travel on or after October 1, 2026. The new figures matter to any Oklahoma or Texas company that sends crews, drivers, or salespeople out of town and pays a daily allowance rather than reimbursing receipts.

We'd put it this way: the per diem rates are the easy part. The hard part is the set of conditions that let an allowance stay off the W-2 in the first place. When those conditions slip, the payroll department finds out years later, usually from an IRS employment-tax examiner who asked for the travel policy and the logs before asking for anything else.

Here are the eight rules we see employers miss most often, with the new numbers where they apply.

What the new per diem rates are

Notice 2026-60 supersedes Notice 2025-54, which covered October 1, 2025 through September 30, 2026. The new notice applies to per diem allowances paid on or after October 1, 2026 for travel away from home on or after that date.

The headline figures:

• High-low method: $329 per day for a high-cost locality and $230 per day for any other locality in the continental United States. Of those amounts, $86 (high) and $74 (low) are treated as paid for meals.
• Meals and incidentals only, under high-low: $86 high, $74 low.
• Special transportation-industry rate for meals and incidentals: $80 for any locality in the continental United States and $86 outside it.
• Incidental expenses only: $5 per day.

A "high-cost locality" is one with a federal per diem rate of $280 or more for the specified part of the year, and the notice lists them by state and by month. Compared with last year's list, the notice adds Tucson, Arizona; San Mateo, Foster City and Belmont, California; Albuquerque, New Mexico; and Cody, Wyoming. It removes Panama City, FL.

One detail worth sitting with for a regional business: the list includes no Oklahoma or Texas locality. Under the high-low method, a trip from Oklahoma City to Tulsa, Midland, or Houston gets the low rate of $230, with $74 of it treated as meals.

The notice itself says that anyone using these rates must comply with Rev. Proc. 2019-48, the revenue procedure that defines how per diem substantiation works. Everything that follows comes from that procedure.

Rule 1: a per diem is a substitute for receipts, not a substitute for records

Under Rev. Proc. 2019-48, a per diem allowance is a payment under an expense allowance arrangement for lodging, meals, and incidental expenses (or meals and incidentals only) that is "reasonably calculated not to exceed the amount of the expenses or the anticipated expenses." If the employer pays at or below the federal rate for the locality, the amount is deemed substantiated and no lodging receipt is required.

Deemed substantiation covers the amount. It does not cover the trip. The employee still has to substantiate the time, place, and business purpose of the travel within a reasonable period. A per diem policy that drops the hotel folio requirement but never replaces it with a travel log has removed the one thing the IRS cares about and kept nothing in its place.

In practice the log is the first document an examiner asks to see. Dates, destination, and purpose, per trip, per employee. If the company can't produce that, the discussion about rates never happens.

Rule 2: the deemed amount is the lesser of the allowance or the federal rate

For a lodging-plus-meals per diem, the amount treated as substantiated for each day is the lesser of the allowance actually paid or the federal per diem rate for that locality. The federal rate is the sum of the GSA lodging rate and the meals-and-incidentals rate for the place where the employee stops for sleep or rest.

Paying more than the federal rate isn't prohibited. The excess simply becomes wages. Under sections 7.04 and 8.01 of the procedure, any amount above the deemed amount is includible in income, treated as paid under a nonaccountable plan, reported on the W-2, and subject to income-tax withholding and employment taxes.

That has a state consequence too. Oklahoma employer withholding tracks federal wages in the ordinary case, so an allowance that fails federally becomes wages for state withholding as well. We've written separately about Oklahoma withholding problems for employers, and reclassified travel pay is a common way they start.

Rule 3: the high-low method is a full-year commitment per employee

The high-low method exists so a payor doesn't have to look up a different GSA rate for every city. Section 5.01 limits it to a payor that pays a per diem allowance in lieu of reimbursing actual expenses; employees and self-employed people cannot use it for their own deduction method.

Consistency is the rule that gets missed. Under section 5.03, once a payor uses high-low for an employee, it must use that method for all amounts paid to that employee for travel within the continental United States during the calendar year. Switching an employee between high-low and locality rates mid-year, because one method happened to pay better for a particular trip, is exactly what the rule forbids.

The last three months of 2026

Because the rates change on October 1 and the calendar year doesn't, both methods have a transition rule. Under section 4.06, a taxpayer using locality rates may keep using the rates in effect for the first nine months of the year through December, applied consistently. Under section 5.04, a high-low payor must keep the same method for the rest of the year and may use either the first-nine-months rates and high-cost list or the new ones, but must apply that choice consistently for all employees.

A policy memo that picks one option and dates it is cheap insurance. A spreadsheet where October trips are at the old rate and November trips are at the new one, with no explanation, is the kind of inconsistency that invites questions.

Rule 4: the allowance can't be computed like wages

Section 3.03 allows a flat rate or stated schedule, but only one set "on a uniform and objective basis." An amount per mile or per hour can qualify. What does not qualify is an allowance computed on a basis similar to the one used to compute the employee's wages or other compensation, unless the arrangement was identified as a per diem before December 12, 1989 or was customary in the industry at that time.

Then section 8.07 closes the back door. An arrangement that pays an employee regardless of whether the employee actually incurs deductible travel expenses, or that recharacterizes taxable wages as nontaxable reimbursements, fails the business-connection requirement. That language is aimed at a familiar pattern: an employer that cuts base pay, adds a "per diem" of the same amount, and calls the result a reimbursement plan.

A pattern of abuse goes further still. Under section 8.06, if an arrangement shows one, meaning it routinely pays excess allowances without requiring substantiation, return, or wage treatment, every payment under it is treated as nonaccountable, not just the excess. That turns a rounding problem into a whole-plan problem.

Rule 5: owner-employees are on receipts

This is the one closely held companies miss, and it's the one we'd flag first in any review. Section 6.07 provides that the lodging-plus-meals method in section 4.01 and the high-low method in section 5 do not apply when the payor and the employee are related parties under section 267(b), with the ownership percentage set at 10 percent for this purpose.

Read plainly: a shareholder or member who owns more than 10 percent of the company cannot have lodging deemed substantiated by per diem. The owner's own travel has to be supported by actual receipts, even when every other employee is on the daily rate. The company policy that applies one rule to everyone, including the founder, is technically wrong for the founder.

The practical wrinkle is that the owner is usually the person who travels most and keeps the fewest records. By the time anyone notices, several years of the owner's lodging allowances may be sitting in the wrong column, and those are the years an examiner will reclassify.

Rule 6: no overnight stay, no lodging per diem

Under the procedure, the federal per diem rate attaches to the locality where the employee stops for sleep or rest. The procedure's framework is built around travel away from home, which in general requires a stay long enough that sleep or rest is needed. A crew that drives to a job site two hours away and drives home the same evening isn't traveling away from home in that sense, and a lodging-plus-meals allowance for that day has no lodging expense to substitute for.

Partial days have their own rule. Under section 6.04, a payor may prorate a partial day using the Federal Travel Regulations approach, which allocates three-fourths of the rate to each partial day of travel, or any other consistently applied method that is reasonable. Employees using the deduction method must follow the regulation's specific proration rules.

Rule 7: incidentals mean tips, not laundry

The procedure defines incidental expenses by reference to the Federal Travel Regulations: "fees and tips given to porters, baggage carriers, bellhops, hotel staff, and staff on ships." Laundry, phone calls, and transportation between the hotel and a restaurant are not incidentals under that definition. They are either separately reimbursable business expenses with their own substantiation, or they are not reimbursable at all.

Where this bites is the $5 incidental-only rate under section 4.05. That figure is a deduction-method amount for self-employed people and the narrow class of employees who can still deduct travel, on days they pay no meal expenses; a payor using the lodging-plus-meals or high-low methods can't use it at all. Paying a $5 incidental add-on on top of a full meals-and-incidentals per diem double-counts the same expense, and section 6.06 treats any additional payment for an expense already covered by a per diem as paid under a nonaccountable plan.

Rule 8: the 50 percent meals limit still applies to the employer

Tax-free to the employee does not mean fully deductible to the company. Section 6.05 subjects the meals portion of the deemed amount to the section 274(n) limitation, which generally allows 50 percent. For employees subject to Department of Transportation hours-of-service rules, the deductible percentage is 80 percent.

This is why the notice carves out the meals portion of each high-low rate: $86 of the $329 high rate and $74 of the $230 low rate. A payor using the full $230 for in-region travel treats $74 as meals subject to the limit and the remaining $156 as the lodging portion outside it. Lumping the whole per diem into a single "travel" account that gets deducted at 100 percent is a quiet, repeating overstatement.

The honest case for per diem, and the honest case against

Per diem is optional. IR-2019-190, the release that announced Rev. Proc. 2019-48, states that taxpayers aren't required to use any method in the procedure and may substantiate actual expenses with adequate records instead. The same release notes that the 2017 tax law suspended the miscellaneous itemized deduction for employees' unreimbursed business expenses, which is the reason a properly structured employer reimbursement matters more now than it once did.

In favor of per diem: predictable budgeting, no hotel folios to chase, and a deemed-substantiated amount the examiner can check against a published table. Against it: the consistency rules are rigid, the owner-employee bar is easy to overlook, and a wage-like allowance is a payroll-tax problem dressed as a travel policy. For a company with a handful of travelers and a disciplined expense system, actual-expense reimbursement can be simpler. For a trucking operation or an oilfield service company with dozens of people on the road, the transportation-industry rate and the high-low method earn their keep.

When the problem outgrows the CPA

Most per diem questions belong with the CPA and the payroll provider. Which method, which rates for the fourth quarter, how to document the policy, whether the log format is adequate. Those are compliance questions and the answers are in the procedure.

Some of them aren't. If an examiner has proposed reclassifying several years of allowances as wages, the issue is no longer the travel policy; it's an employment-tax assessment with withholding, both halves of FICA, penalties, and interest attached. Once the company can't pay that assessment, the withheld portion can be pursued against responsible individuals personally under section 6672 of the Internal Revenue Code, and we've explained how the trust fund recovery penalty makes payroll taxes personal. An owner-employee whose own per diem was never valid under the related-party rule faces the same exposure from the other side of the table.

Those are the points where we'd want counsel in the room with the CPA: multi-year reclassification, a pattern-of-abuse finding that converts the whole plan to nonaccountable, or an officer being interviewed about who controlled the payroll account.

If your company pays travel allowances and you're not certain the plan would hold up to the eight rules above, we're glad to talk through it. Reach our practice through the contact page or the Oklahoma City office. A conversation now, while the policy can still be fixed prospectively, is almost always less expensive than the examination that finds the problem for you.

This article is general information about Oklahoma, Texas, and federal law, not legal advice, and it does not create an attorney-client relationship. Facts matter; talk to a lawyer about yours.