The Internal Revenue Service has announced its plan to maintain “high-low” per diem rates for business travel expense purposes, commencing October 1, 2025. This unusual pause in annual increases, keeping rates at $319-$225 for high-cost localities and other high-cost localities within the continental United States, exactly unchanged from last year’s amounts, will be seen in Notice 2025-54. This notice dictates taxpayers’ proposals for substantiated or nonsubstantiated business travel deductions (lodging, meals, and incidental expenses) for the fiscal period for 2025 through 2026.
How to understand the per-hour method of substantiation
It is an alternative for employers and other business travelers to easily avoid the tiring and altogether time-consuming tracking of the actual expense incurred while away from the office on business. This is for the consumers who must select between two rates per day determined outside of the high-low substantiation method.
With this high rate of $319, specific high-cost localities will have federal per diem rates of $272 or more. The lower rate of $225 takes care of all other places in the continental United States.
While IRS continued these special rates for taxpayers in the transportation industry, the IRS also kept the same: it did not raise its special meals and incidental expenses rates of $80 for any travel made within the continental United States and $86 for any travel outside continental United States.
Classes of travel and specialty rates by IRS This measure took effect for all other locations, both within and outside the country. Consolidation also remains at $5 per day, irrespective of the country involved, within the continental United States and outside of it. Incidental expenses are defined in terms of fees and tips paid to porters, baggage carriers, hotel staff, and ship crew members and thus represent minor out-of-pocket costs.
Implementation timeline and compliance mandates
The already unchanged rates apply with respect to per diem allowances paid to employees for travel occurring on or after October 1, 2025. For deductibility purposes, this notice applies to meals, incidental expenses, or incidental-only expenses incurred or paid for on or after October 1, 2025.
Moreover, in regard to per diem payments under the high-low method, the employer applies this method consistently on all employees within the same calendar year. Notably, this is applicable for the final three months of the year, wherein IRS permits companies to opt for rates from either of the first nine months or of the newly updated October 1 rates, provided this is uniformly applied to all employees.
Business and administrative concerns
Keeping per diem rates unchanged makes them predictable for businesses while budgeting their travels for the year 2025 and beyond. Companies do not need to change the existing systems and policies, which increases the predictability of their travel for 2025-2026, thus reducing administrative effort during the changeover period. This comes beyond the usual inflationary influence that has historically led to increases in per diem rates in years past.
It is not mandatory for the use of the per diem rates under IRS rules. Businesses and individuals may substantiate their allowable expenses via adequate records and sufficient evidence of proper substantiation. But using per diem provides significant advantages due to reduced administrative work.
These unchanged rates also maintain the same meal portion limitations under Section 274(n) such that there would be an $86 meal portion attributable to high-cost localities and $74 for others, which will then apply to the computation of deductible meal expenses. Existing procedures for expense reports are not affected, and companies are ensured of continued compliance with federal tax requirements in terms of business travel deductions.
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