Each fall, the IRS updates its special per diem rates for business travel, giving employers an opportunity to review their travel reimbursement policies and expense reporting procedures. The latest update, effective October 1, 2026, includes modest rate increases that could have a meaningful impact for businesses with employees who travel frequently.

The IRS released Notice 2026-60 on September 24, establishing per diem rates for the period beginning October 1, 2026, and ending September 30, 2027. Under the high-low substantiation method, the daily rate for high-cost localities increases from $319 to $329, while the rate for all other localities in the continental United States rises from $225 to $230.

While these increases may seem small on a per-day basis, they can add up for organizations with significant travel activity and may affect both reimbursement costs and tax deductions.

Understanding Per Diem Reimbursements

Per diem rates are fixed daily allowances for lodging, meals, and incidental expenses incurred while traveling away from home on business. Rather than tracking every travel expense individually, employers may use per diem rates to simplify reimbursements while satisfying IRS substantiation requirements.

Many employers use the IRS high-low substantiation method, which applies one rate to designated high-cost localities and another rate to all other locations within the continental United States. Others use destination-specific federal per diem rates published by the General Services Administration (GSA) or reimburse actual expenses with supporting documentation.

Key Changes for 2026-2027

For the new rate year, the total daily per diem rates increase to:

• $329 for high-cost localities
• $230 for all other continental U.S. localities

The meals and incidental expenses (M&IE) portions remain unchanged at:

• $86 for high-cost localities
• $74 for all other localities

The incidental expenses-only deduction rate also remains unchanged at $5 per day.

Updates to High-Cost Localities

The IRS updates its list of high-cost localities each year. For 2026-2027, four locations have been added:

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

Panama City, Florida, has been removed from the list, and several existing high-cost localities have changes to their qualifying periods. Businesses with employees traveling to destinations such as New York City, Philadelphia, Aspen, and Hilton Head should review the updated dates to ensure reimbursements are calculated correctly.

What Businesses Should Review Now

The new rate period began October 1, making this a good time to review travel and expense procedures.

Consider the following:

• Update expense management systems with the new per diem rates and locality information.
• Review travel reimbursement policies to confirm they align with current IRS guidance.
• Communicate any changes to employees and managers who submit or approve expense reports.
• Verify that employees continue to document the time, place, and business purpose of travel as required.

Annual updates also provide an opportunity to determine whether your current reimbursement method still makes sense. Businesses with employees traveling to a limited number of destinations may benefit from using location-specific federal rates, while organizations with travel occurring across many cities often find the high-low method easier to administer.

Looking Ahead

While this year’s increases are relatively modest, they reflect continued pressure on lodging costs in many markets. Regularly reviewing your travel reimbursement policies, expense systems, and internal procedures can help reduce administrative burdens while supporting compliance with IRS requirements.

The annual per diem update is more than just a rate change. It’s an opportunity to evaluate whether your travel reimbursement program continues to meet the needs of your business and your employees.

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