IRS Announces Updated Special Per Diem Rates for Business Travel for 2026–2027

By AICPA & CIMA Professional News Desk
Published: Fall 2026

Main Facts

The Internal Revenue Service (IRS) has officially released Notice 2026-60, outlining the newly adjusted special per diem rates that taxpayers, employers, and employees may utilize to substantiate business travel and incidental expenses under the standard per diem substantiation framework. Effective October 1, 2026, these updated rates provide a streamlined mechanism for businesses to reimburse personnel for lodging, meals, and incidental expenses (M&IE) without requiring exhaustive, itemized receipt-keeping for every minor transaction.

Under the regulatory guidelines of Rev. Proc. 2019-48, if an employer or payer elects to provide a per diem allowance in lieu of tracking and reimbursing actual employee expenses, the amount deemed fully substantiated is capped at the lesser of the actual allowance provided or the federal per diem rate established for the specific locality within the continental United States (CONUS).

Key highlights of the 2026–2027 update include:

• High-Low Substantiation Rates: The per diem rate for designated high-cost localities within CONUS increases to $329 (up from $319). The rate for all other (non-high-cost) localities increases to $230 (up from $225).
• M&IE Allocations: The portion of the per diem rate treated as payment for meals under Section 274(n) remains steady at $86 for high-cost CONUS localities and $74 for all other CONUS localities.
• Transportation Industry Rates: Special M&IE rates for eligible transportation industry workers remain unchanged at $80 for CONUS travel and $86 for outside CONUS travel. The separate incidental-expenses-only rate remains $5 per day universally.
• Effective Window: The new rates and revised list of high-cost areas officially take effect on October 1, 2026, and will run through September 30, 2027.

Chronology of Per Diem Updates and Regulatory Background

To fully comprehend the scope of Notice 2026-60, it is vital to trace the historical evolution of how the federal government sets, revises, and applies per diem rates for tax and accounting purposes.

The Foundation: Revenue Procedure 2019-48

For years, the overarching mechanics governing how businesses substantiate travel expenses have been anchored by Revenue Procedure 2019-48. This comprehensive IRS guidance details the "rules of the road" for per diem allowances, defining how employers can adopt simplified substantiation procedures that satisfy the strict accounting requirements of the IRS and the Department of the Treasury. Without such administrative safe harbors, businesses and employees would face the immense administrative burden of retaining and submitting receipts for every cup of coffee, taxi ride, and overnight hotel stay incurred during corporate travel.

The Annual Autumn Transition

Unlike many tax provisions that align with the calendar year (January 1 through December 31), federal travel rates and per diem guidelines typically operate on a fiscal-year cycle running from October 1 through September 30. This timing aligns with the federal government’s fiscal scheduling and allows the General Services Administration (GSA) and the IRS to evaluate economic indicators, inflation metrics, hotel pricing trends, and regional cost-of-living shifts during the summer months before publishing updated rates well in advance of the fourth-quarter travel season.

The Notice 2026-60 Timeline

• Summer 2026: Federal agencies and the IRS evaluate inflation data, lodging costs, and restaurant pricing indices across the United States.
• Late 2026 (Effective October 1): Notice 2026-60 takes legal effect, replacing the previous year’s figures (which were governed by preceding notices) and introducing the updated high-cost threshold ($280 or more) along with the revised list of qualifying high-cost cities and counties.
• September 30, 2027: The expiration date for the 2026–2027 per diem rate schedule, at which point a subsequent notice will take effect for the following operational year.

Supporting Data and Rate Breakdown

A granular examination of the data released in Notice 2026-60 reveals how different geographic tiers and specialized sectors are impacted by the adjustments. The federal government utilizes standardized statistical methods to categorize regions, ensuring that businesses operating in expensive metropolitan corridors are not penalized by flat national averages.

The High-Low Substantiation Method

The high-low substantiation method is an optional simplification shortcut available to employers. Rather than looking up federal per diem rates for every distinct municipality or county an employee visits, employers can apply a single, uniform rate for any "high-cost" locality and another uniform rate for all other areas within CONUS.

For the 2026–2027 period, the metrics break down as follows:

Meal and Incidental Expense (M&IE) Portions

Tax law under Internal Revenue Code Section 274(n) limits the deduction for business meals to a specific percentage (generally 50%, though temporary adjustments have occurred under prior legislative acts). To properly apply these rules, employers must know how much of the total per diem rate is explicitly allocated to meals.

Under the updated guidance:

• For high-cost CONUS localities, $86 of the daily rate is treated as paid for meals.
• For all other CONUS localities, $74 of the daily rate is treated as paid for meals.

Definition and Revision of High-Cost Localities

Not every major city automatically qualifies as a high-cost area. The IRS defines high-cost localities in Notice 2026-60 as any specific locality within the continental United States that maintains a federal per diem rate of $280 or more for all or part of the calendar year.

Because economic conditions, real estate markets, and tourism demands fluctuate, the specific roster of cities, counties, and non-standard metropolitan areas designated as "high-cost" is revised annually. Employers utilizing the high-low method must consult the specific geographic appendices attached to Notice 2026-60 to ensure they are applying the $329 rate to the correct jurisdictions. Areas that dropped below the $280 threshold are transitioned to the standard $230 rate, while newly expensive regions are elevated.

Transportation Industry Special Rates

Workers in the transportation industry—such as long-haul truckers, airline flight crews, and intercity bus drivers—face unique travel patterns that make traditional per diem tracking impractical. To accommodate these workers, the IRS provides specialized substantiation rules:

• M&IE Rates: Remain unchanged at $80 for any locality of travel within CONUS and $86 for localities of travel outside CONUS (OCONUS).
• Incidental Expenses Only: The separate rate for incidental expenses remains fixed at $5 per day for both CONUS and OCONUS travel.

Official Responses and Stakeholder Perspectives

The release of annual per diem adjustments always generates significant commentary from tax professionals, corporate human resources departments, and industry associations representing mobile workforces.

Corporate Tax and Accounting Community

Tax practitioners have generally welcomed the modest increases as a realistic reflection of ongoing inflationary pressures within the hospitality and restaurant sectors. While lodging costs in major metropolitan hubs have stabilized compared to the sharp post-pandemic spikes seen in earlier years, hotel room rates and dining out remain noticeably higher than pre-2020 baselines.

Speaking on the operational impact of these updates, corporate tax advisors emphasize that automation is key. Many enterprise resource planning (ERP) and expense-management software platforms (such as Concur, Expensify, and proprietary corporate systems) automatically ingest IRS notices upon publication. This ensures that corporate reimbursement policies update seamlessly on October 1 without requiring manual spreadsheet overhauls by internal accounting teams.

Transportation Sector Reactions

Representatives for the trucking and logistics industries expressed relief that the specialized transportation M&IE rates ($80 CONUS / $86 OCONUS) remain stable, providing predictable budgeting metrics for fleet operators navigating fuel price volatility and driver retention challenges. For truck drivers who spend hundreds of nights away from home annually, predictable meal deductions are a critical component of annual tax compliance.

Practical Implications for Businesses and Taxpayers

Transitioning to the new per diem rates requires proactive measures from employers, payroll administrators, and self-employed individuals. Below is an analysis of the practical ramifications stemming from Notice 2026-60.

1. Review and Update Expense Policies

Employers must review their internal travel and entertainment (T&E) policies well ahead of October 1. If an organization’s internal per diem allowance is pegged directly to federal rates, HR and finance departments must update their payroll and reimbursement schedules to reflect the new $329 high-cost and $230 non-high-cost caps.

2. Accountable Plan Compliance

To ensure that per diem allowances remain tax-free to employees (i.e., excluded from gross income and exempt from employment taxes), payments must be made under an "accountable plan." This requires meeting three core statutory tests:

• Business Connection: Expenses must have a legitimate business connection (incurred while performing services as an employee).
• Substantiation: The employee must substantiate the time, place, and business purpose of the travel within a reasonable period.
• Return of Excess: Any allowance exceeding the federal per diem rate must be returned to the employer within a reasonable timeframe.

By utilizing the rates provided in Notice 2026-60, employers satisfy the substantiation requirement automatically, provided the other accountable plan criteria are met.

3. Impact on Self-Employed Individuals

Self-employed taxpayers (sole proprietors, independent contractors, and single-member LLC owners) can also utilize federal per diem rates to simplify their record-keeping. While self-employed individuals generally cannot use the lodging portion of the per diem rate under standard rules (they must deduct actual lodging expenses), they can use the federal M&IE rate and the transportation industry M&IE rates to compute meal deductions on Schedule C, subject to the applicable statutory meal deduction limits.

4. Record-Keeping Best Practices

Even though per diem methods eliminate the need to save paper receipts for every individual meal or hotel night, taxpayers are still required to maintain adequate records proving the time, place, and business purpose of each trip. A well-maintained calendar, travel itinerary, flight boarding passes, or meeting logs remain essential audit-defense tools in the event of an IRS inquiry.

Conclusion

The publication of IRS Notice 2026-60 marks another crucial step in the annual administrative cycle of business tax compliance. By raising the high-cost CONUS per diem rate to $329 and the non-high-cost rate to $230, the IRS has provided necessary adjustments to help businesses offset the economic realities of modern corporate travel. Taxpayers, employers, and payroll administrators must ensure their systems are fully aligned with these new thresholds ahead of the October 1 effective date to maintain seamless compliance, maximize legitimate deductions, and avoid costly administrative errors.

To comment on this article or to suggest an idea for future coverage, contact Martha Waggoner at [email protected].