Calculating per diem is a straightforward process once you understand the standard method. At its core, the calculation involves finding the official government rate for a travel destination. This rate provides a set daily amount for lodging and a separate one for meals and incidental expenses (M&IE).

This is a widely used method for companies to handle reimbursement for business travel due to its efficiency and clarity.

What is Per Diem?

Per diem is a fixed daily allowance an employer provides to cover living expenses during business travel. Instead of collecting every receipt for meals and hotel stays, the company provides a flat, pre-determined amount for each day. It is a system designed to simplify expense management for both the employee and the organization.

These rates are not arbitrary. They are calculated to reflect the cost of living and dining in a specific city. A trip to San Francisco, for example, will have a higher per diem rate than a trip to Omaha. The objective is to provide sufficient funds to cover reasonable costs without requiring extensive paperwork.

The Building Blocks of a Per Diem Rate

A per diem rate consists of two key components. Understanding this breakdown is the first step to accurate calculations.

Before detailing the specifics, here is an overview of the components that make up a standard per diem rate. This table breaks down what each part covers and where the rates are typically sourced.

Per Diem Components at a Glance

Component	What It Covers	Typical Rate Source
Lodging	The cost of your hotel or other accommodation for each night.	GSA (for domestic US), Department of State (for international), or Department of Defense (for military).
M&IE	All meals (breakfast, lunch, dinner) and small miscellaneous expenses.	Same as lodging sources. The "incidental" part includes tips for hotel staff, porters, etc.

The total daily amount is a simple combination of these two core allowances.

The U.S. General Services Administration (GSA) is the primary source for setting these rates for travel within the Continental United States (CONUS). For fiscal year 2020/21, for example, the standard lodging rate was $96 per day.

However, the GSA also identified 319 non-standard areas (NSAs) with significantly higher local costs, which were assigned their own, higher rates. To establish these figures, the GSA analyzes real-world hotel data and adjusts it to set the final lodging allowance. For a deeper analysis of how these rates have evolved, you can find information on historical federal per diem trends at hvs.com.

Why Your Per Diem Changes From City to City

You will notice that while a "standard" rate exists, it does not apply everywhere. Major cities and high-cost areas are almost always designated as Non-Standard Areas (NSAs). This is because the cost of lodging and meals is significantly higher in these locations.

This location-based system is crucial. It ensures you are not paying out-of-pocket for basic expenses just because you were sent to a high-cost city. It is a cornerstone of any fair and effective travel policy. In fact, understanding per diem is a key part of building a solid company travel and expense policy.

Calculating Your Domestic Per Diem

When traveling for business within the U.S., the first step is to find the official per diem rate for your destination. Do not guess or use a national average. The U.S. General Services Administration (GSA) has an official lookup tool that provides the exact figures you need.

Simply enter your destination city or county, and the GSA tool provides two crucial figures: the maximum amount you can be reimbursed for lodging and the daily rate for Meals and Incidental Expenses (M&IE). These two pieces are the building blocks of your total daily allowance.

This diagram illustrates how these components fit together.

The total per diem is the sum of these parts, all sourced from the official government rates for your specific travel location.

A Practical Calculation Example

Let's review a practical scenario. Imagine you have a three-day business trip to Denver, Colorado.

Your first step is to check the GSA tool for Denver's rates. For this example, we'll assume the tool provides these numbers:

Maximum Lodging: $195 per night

M&IE Rate: $79 per day

Calculating the per diem for a full day of your trip is simple. You just add the two rates together: 79 = $274. That is your total per diem for Day 2. But what about the days you are traveling? Those are calculated differently.

Handling Partial Travel Days

This is a point of frequent confusion. The first and last days of your trip are not considered full days for meal expenses. The GSA has a specific rule to make this simple and standardized.

Let's apply this to our Denver trip. You need to find 75% of the 79 x 0.75 = $59.25. This is your adjusted M&IE amount for your travel days.

So, your total per diem for the first and last days of the Denver trip would be: 59.25 (Adjusted M&IE) = $254.25.

Here’s the full breakdown for your three-day trip:

Day 1 (Travel Day): $254.25

Day 2 (Full Day): $274.00

Day 3 (Travel Day): $254.25

By looking up the correct rates and remembering the 75% M&IE rule for travel days, you can ensure every per diem claim is accurate and compliant. It is a simple process once you understand the methodology.

Navigating International Per Diem Calculations

When your work takes you outside the country, calculating per diem is different. You no longer use the GSA rates for domestic travel. Instead, international trips fall under the purview of the U.S. Department of State, because the economic factors are far more complex.

The Department of State is the official source for all foreign per diem rates. Unlike domestic rates that are set annually, these figures are updated monthly. This frequent adjustment is crucial for keeping up with fluctuating currency exchange rates and the changing costs of hotels and food in global markets. Relying on an outdated rate can lead to budget inaccuracies.

Finding and Using Foreign Rates

To begin, you will need to look up the official rates for the specific city you are visiting. The process is similar to the GSA's domestic tool, but it pulls directly from the Department of State's database. You will find the data organized first by country, and then broken down by city or region.

Pay close attention to how lodging taxes are handled. In many countries, these taxes can be significant and are sometimes listed separately from the base lodging rate. Always read the footnotes for your destination to see if taxes are included or if you need to account for them as a separate line item.

Understanding Global Rate Variations

The difference in per diem rates around the world can be substantial. Depending on the destination, the daily allowance can range from approximately 700.

Major European hubs often have higher rates. For instance, London averages about 684. Meanwhile, key cities in the Asia-Pacific region might be more moderate, like Tokyo at 385. You can explore more of these figures and get a better sense of international per diem rates at engine.com.

This significant variance is why using current, location-specific data is non-negotiable.

Let's walk through a quick example: a five-day business trip to Tokyo.

First, you would pull the most recent maximum lodging and M&IE rates for Tokyo from the Department of State.

Then, you would apply those full daily rates to the three full days you are there.

Finally, you would adjust the M&IE for your first and last travel days based on your company's policy, double-checking for any specific rules that apply only to international travel.

Adhering to this process ensures your reimbursement accurately reflects the cost of being on location.

Handling Common Per Diem Scenarios

Business travel is rarely a simple affair. Once you learn to look up standard rates, you will find that real-world travel presents unique situations. Learning how to handle multi-city trips or provided meals is the next step to mastering per diem calculations.

Making these adjustments correctly is about ensuring your expense reports are accurate and compliant. This helps you get reimbursed fairly and prevents issues for accounting departments.

When Meals Are Provided for You

This is perhaps the most common adjustment you will need to make. Conferences often provide lunch, a client may provide dinner, or your hotel might offer a complimentary breakfast.

When a meal is provided at no cost to you, you cannot claim the full M&IE (Meals and Incidental Expenses) rate for that day. The rule is simple: you must deduct the value of that specific meal from your daily allowance. The GSA sets standard deduction amounts for each meal, which are tied to the total M&IE rate for your location.

Let's say the M&IE rate for your destination is 79 to get your adjusted per diem for the day.

Here is a reference table that breaks down how the deduction works with that $79 M&IE rate.

Standard Meal Deduction Cheat Sheet (Based on GSA M&IE Rates)

Meal Provided	Typical Deduction Amount	Example Daily M&IE ($79)	Adjusted M&IE Rate
Breakfast	$17	$79	$62
Lunch	$18	$79	$61
Dinner	$34	$79	$45
Breakfast & Dinner	$51	$79	$28

Remember, these deduction amounts are specific to the M&IE rate, so always double-check the GSA's breakdown for your particular travel location and daily rate.

Traveling to Multiple Locations in One Day

What happens when you are in one city in the morning and a different one by evening? This is another common travel scenario that has a specific rule.

It is quite straightforward: your per diem rate for the entire day is based on where you lodge for the night.

Imagine you have a morning meeting in San Jose, California, and then drive to Sacramento in the evening for the next day's work. Even though you were in the more expensive San Jose for part of the day, your lodging and M&IE rates are both based on Sacramento because that is where you stayed overnight.

The High-Low Method: An Alternative Approach

Not every company wishes to look up individual GSA rates for every trip. For them, a simpler approach known as the high-low system is available.

This method streamlines the process by creating just two standard per diem rates:

A higher rate for travel to designated "high-cost" locations.

A lower rate for everywhere else in the continental U.S.

The IRS updates the list of high-cost cities and their corresponding rates annually. Many companies prefer this system because it reduces administrative work—you just need to know if a city is on the high-cost list or not. From a tax perspective, it is a legitimate way to handle per diem, as long as the company applies the method consistently.

How to Make Per Diem Tracking More Efficient

Manually calculating per diem can be a challenge. Juggling different rates for every city, adjusting for partial days, and tracking provided meals is a significant administrative burden. It is not just tedious—it is a process with potential for human error, which can lead to incorrect payments and compliance issues.

Good record-keeping is not just a suggestion; it is essential for receiving correct reimbursement and maintaining a clean, auditable trail for the IRS.

This is where you can stop wrestling with spreadsheets and government websites. Automating the process can ensure every calculation is accurate and properly documented.

Why Automation is a Major Benefit for Expenses

Expense management software can turn this task into a few simple clicks. These tools perform the heavy lifting, from automatically pulling the correct GSA or Department of State rates for your travel dates to applying the 75% M&IE rule on your first and last days without manual intervention.

The benefits are almost immediate:

Accuracy: Automation removes the risk of using outdated rates or making mathematical errors. Every reimbursement is calculated correctly.

Efficiency: What used to take an hour can now be done in minutes. This frees up significant time for both employees and expense approvers.

Compliance: An automated system provides a clean, consistent, and easily accessible record for every per diem claim, which makes audits or financial reviews less stressful.

When you automate these steps, you build a much more reliable workflow. The small, manual errors that tend to compound over time are eliminated, making the entire process more transparent for everyone involved.

Building a Reliable Per Diem System

A solid system provides a clear, predictable framework for every trip. If you are creating or updating your company's expense rules, it is worth reviewing modern corporate travel policies to see how others handle per diem allocations. A strong policy backed by the right tools eliminates guesswork.

Ultimately, it does not matter if you are a freelancer managing your own trips or part of a large company—the principle is the same. Moving from manual calculations to an automated approach saves time and builds a more dependable financial process. This is a core part of learning how to track expenses effectively. With the right system, you can focus on the reason for your trip, not the associated paperwork.

Frequently Asked Per Diem Questions

Even after you understand how to calculate per diem, some situations may arise. Getting clear answers to a few common questions can save time and prevent simple mistakes.

Let’s review some of the most frequent inquiries.

What Does the M&IE Rate Actually Cover?

The Meals and Incidental Expenses (M&IE) rate is a daily allowance for food and other small, on-the-go costs. It is designed to cover breakfast, lunch, and dinner. It also includes tips for hotel staff, porters, and baggage carriers.

It can even cover minor but necessary expenses like laundry or dry-cleaning.

What is not included is just as important. The M&IE rate does not cover taxi fare, ride-shares, or lodging taxes. Those are almost always reimbursed as separate, itemized expenses.

Do I Need to Keep Receipts on Per Diem?

This is a key question. One of the main benefits of a per diem system is reduced paperwork. If your company uses the standard GSA rates and your spending stays within that allowance, the IRS generally does not require you to keep every receipt for your meals and incidentals.

What if My Expenses Go Over the Per Diem Rate?

It can happen. You might be in a high-cost city during a major conference, and your actual expenses exceed the official per diem rate. How this is resolved depends on your company's expense policy.

Some employers are flexible and will reimburse your actual, reasonable costs if you provide detailed receipts. Others adhere strictly to the per diem allowance. In that case, any overage is an out-of-pocket expense. If you anticipate you might go over the limit, the best course of action is to speak with your manager before the trip.

Is Per Diem Considered Taxable Income?

In most cases, no. Your per diem payments are not considered taxable income as long as two conditions are met: the rate you are paid is at or below the maximum federal rate for your location, and you submit a proper expense report to your employer on time.

However, if your employer pays a per diem that is higher than the federal maximum, that excess amount is considered taxable income. The overage must be reported on your W-2 form, so it is something to monitor.

Stop wrestling with spreadsheets and government lookup tools. With Smart Receipts, you can automate your per diem and expense tracking in seconds. Capture receipts, generate reports, and get your time back.

Download Smart Receipts and simplify your expenses today.