IRS Announces Upward Adjustments to Special Per Diem Rates for Business Travel Under Notice 2026-60

WASHINGTON — In a move designed to reflect the ongoing economic realities of inflation and rising travel costs, the Internal Revenue Service (IRS) has released Notice 2026-60, outlining increased special per diem rates that taxpayers may use to substantiate business travel and incidental expenses. The updated figures, which stem from the foundational guidelines established in Rev. Proc. 2019-48, take effect nationwide starting October 1.

These adjustments impact employers, employees, and self-employed individuals across the United States who rely on simplified federal substantiation methods rather than tracking every individual receipt for lodging, meals, and incidental expenses incurred during domestic and international business travel.

Main Facts

The core mechanism of the federal per diem substantiation method allows employers and other payers to provide a daily allowance to employees in lieu of reimbursing actual, itemized expenses. Under this system, the amount deemed substantiated for any given calendar day is restricted to the lesser of the actual allowance paid or the standard federal per diem rate calculated for the specific locality within the continental United States (CONUS).

Under Notice 2026-60, several key changes take immediate effect:

• High-Low Substantiation Method Rates: For travel to designated high-cost localities within CONUS, the daily rate will increase from $319 to $329. For all other (non-high-cost) localities within CONUS, the rate will rise from $225 to $230.
• Meal Component Allocations: The portion of the daily per diem rate treated as payment for meals—crucial for calculating business meal deductions under Section 274(n)—remains steady at $86 for high-cost localities and $74 for all other CONUS localities.
• High-Cost Locality Thresholds: The IRS has updated its official roster of high-cost localities for the annual period running from October 1, 2026, through September 30, 2027. To qualify as a high-cost area under the updated guidance, a locality must maintain a federal per diem rate of $280 or more.
• Transportation Industry Rates: Special substantiation rules tailored for workers in the transportation industry remain largely stable. The Meals and Incidental Expenses (M&IE) rate stays fixed at $80 for travel within CONUS and $86 for travel outside CONUS (OCONUS). Furthermore, the standalone incidental-expenses rate remains $5 per day for both domestic and international transportation-industry travel.

Chronology and Regulatory Timeline

Understanding how the newly announced rates fit into the broader federal tax landscape requires examining the regulatory progression that governs corporate and individual travel expense reporting.

Historical Context and Rev. Proc. 2019-48

For years, the IRS has maintained simplified administrative pathways to relieve businesses of the administrative burden associated with auditing every employee receipt. Revenue Procedure 2019-48 serves as the primary governing framework, setting forth the rules, exceptions, and mandatory compliance standards for utilizing per diem substantiation methods.

The Annual Review Cycle

To ensure that federal allowances track closely with fluctuations in the hospitality, real estate, and food service sectors, the IRS conducts an annual review. This review culminates late in the calendar year—typically published in late summer or early autumn—to give corporate accounting departments, payroll providers, and tax professionals ample time to integrate the upcoming changes into their enterprise software systems.

The Notice 2026-60 Rollout Schedule

• August / September: The IRS drafts and formally releases Notice 2026-60, updating the high-low list and establishing precise dollar figures for the upcoming fiscal cycle.
• October 1: The effective date of the new rates. All per diem allowances paid on or after this date for travel occurring within the designated period must align with the parameters set in Notice 2026-60 to maintain simplified substantiation eligibility.
• September 30 of the Following Year: The expiration date for the current iteration of high-cost locality designations, setting the stage for the subsequent annual review cycle.

Supporting Data and Comparative Analysis

A granular look at the numbers reveals incremental, strategic adjustments designed to cushion businesses against persistent inflationary pressures in the lodging and hospitality sectors, particularly in major metropolitan business hubs.

High-Low Method Comparative Breakdown

Meal and Incidental Expense (M&IE) Allocations

While total daily rates have expanded, the structural allocation designated specifically for food and beverages under Section 274(n) has been held constant for the upcoming cycle:

• High-Cost CONUS Meal Portion: $86.00 per day.
• Standard CONUS Meal Portion: $74.00 per day.
• Transportation Industry M&IE (CONUS): $80.00 per day.
• Transportation Industry M&IE (OCONUS): $86.00 per day.
• Transportation Industry Incidental Expenses (Flat): $5.00 per day.

These figures illustrate that the net expansion of the per diem rates is driven primarily by escalating hotel, motel, and commercial lodging expenses rather than dramatic shifts in standard dining costs.

Official Responses and Stakeholder Perspectives

Reactions from tax professionals, corporate compliance officers, and trade associations have highlighted both the practical relief and the ongoing compliance challenges associated with the annual rate updates.

The Accounting and Corporate Perspective

Speaking on behalf of corporate tax compliance groups, industry analysts note that while a $10 increase for high-cost areas and a $5 increase for standard areas may appear modest, they translate into significant administrative efficiency.

"When managing a workforce that logs tens of thousands of travel days annually, even small adjustments to per diem thresholds matter," said a senior corporate tax strategist based in Chicago. "More importantly, the high-low substantiation method saves countless hours of auditing itemized receipts for hotel stays in notoriously expensive markets like New York, San Francisco, and Boston."

IRS Emphasis on Compliance

Tax authorities continue to emphasize that utilizing these special rates does not mean a complete absence of rules. Employers and employees must still adhere strictly to the foundational guidelines outlined in Rev. Proc. 2019-48. This includes satisfying the "substantiation" requirements regarding the time, business purpose, and business relationship of the travel, even if the exact dollar amount of the expense is deemed substantiated by the federal rate.

Implications for Businesses, Employers, and Taxpayers

The rollout of Notice 2026-60 carries sweeping procedural, financial, and legal implications for anyone managing or undertaking business travel.

1. Payroll and Accounting System Updates

Corporate accounting departments must immediately review their enterprise resource planning (ERP) and payroll software configurations. Failure to update internal per diem tables by October 1 can lead to two major complications:

• Under-reimbursement: Employees traveling to high-cost areas may receive lower daily stipends than permitted, potentially hurting employee morale.
• Over-reimbursement: If an employer pays a per diem that exceeds the newly published federal rates without requiring proper accounting of actual expenses, the excess portion may be treated as taxable wages subject to withholding.

2. Strategic Planning for High-Cost Designations

Because the IRS periodically rotates cities in and out of the "high-cost locality" designation based on shifting General Services Administration (GSA) data, corporate travel managers must carefully review the updated list in Notice 2026-60. A city that qualified as a standard non-high-cost area last year may now cross the $280 threshold, requiring a transition to the higher $329 per diem rate. Conversely, cities experiencing economic cooling may drop off the high-cost list, necessitating downward adjustments in corporate reimbursement policies.

3. Impact on Self-Employed Individuals and Independent Contractors

Freelancers, consultants, and sole proprietors who travel for business can also leverage these standard federal rates to simplify their Schedule C deductions. Using the per diem method eliminates the need to retain minor meal and incidental receipts, though self-employed taxpayers must still maintain contemporaneous logs proving the business connection and duration of each trip.

4. Special Considerations for the Transportation Industry

Long-haul truck drivers, flight crews, and other workers in the transportation sector benefit from the stability of the M&IE and incidental rates ($80 CONUS, $86 OCONUS, and $5 incidental). Because transportation workers frequently cross state and national boundaries, the consistency of these flat rates minimizes recordkeeping friction in an industry where traditional lodging tracking is often impractical.

Conclusion

Notice 2026-60 represents a necessary calibration of federal tax policy in response to economic shifts. By raising the high-cost CONUS rate to $329 and the non-high-cost rate to $230, the IRS ensures that businesses can continue to fairly compensate traveling personnel without being buried under mountains of itemized paperwork.

Employers, payroll administrators, and self-employed taxpayers are urged to review the full text of Notice 2026-60 and cross-reference their travel itineraries with Rev. Proc. 2019-48 to ensure full compliance ahead of the October implementation date.

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