A tide chart looks simple until you miss the timing. Then the whole shoreline changes.
Per diem policy works the same way. The rates look like a small line item, but once the October 1, 2026 through September 30, 2027 period begins, old reimbursement tables can create overpayments, taxable wage issues, and month-end cleanup you do not want in January.
The IRS recently issued new special per diem rates in Notice 2026-60, applied under Rev. Proc. 2019-48. These annual safe-harbor amounts are effective for per diem allowances paid and travel away from home on or after October 1, 2026, through September 30, 2027, and they supersede Notice 2025-54 for the prior period.
This article addresses employer reimbursement arrangements and self-employed individuals. Whether unreimbursed employee travel expenses are deductible is a separate question with significant limitations — consult your CPA.
What changed for the October 1, 2026 through September 30, 2027 period
The headline change is straightforward. The high-low substantiation method increases to $329 per day for high-cost localities and $230 per day for other localities within CONUS.
That is up from $319 and $225. Small change on paper — real impact in volume.
The meal portion used for the deduction limitation under IRC §274(n) does not change. It remains $86 for high-cost localities and $74 for other CONUS localities. The M&IE-only high-low rates are also $86 and $74.
The high-cost locality threshold also moves up. For this period, a locality is considered high cost if the federal per diem rate is $280 or more, up from $272.
A few locality list changes matter immediately if your team travels regionally:
- Added high-cost localities:
- Tucson, Arizona
- San Mateo/Foster City/Belmont, California
- Albuquerque, New Mexico
- Cody, Wyoming
- Removed from the high-cost list:
- Panama City, Florida
Fifteen localities also changed their high-cost portion of the year. Those are Napa CA; South Lake Tahoe CA; Yosemite National Park CA; Aspen CO; Steamboat Springs CO; Telluride CO; Fort Myers FL; Falmouth MA; Toms River NJ; New York City NY; Philadelphia PA; Hilton Head SC; Manchester VT; Montpelier VT; and Port Angeles/Port Townsend WA. Sun Valley/Ketchum, Idaho also has a correction to its high-cost period.
That seasonal detail matters. A city can be high-cost for part of the year and ordinary-rate for the rest.
Per diem use is optional. Taxpayers are not required to use the per diem substantiation method and may substantiate actual expenses instead. And federal per diem substantiation does not govern state treatment — state rules may differ.
Who can use the high-low method — and who cannot
This is the point many business owners need made plainly. The high-low substantiation method is a method for payors — employers reimbursing employees.
Under Rev. Proc. 2019-48, employees and self-employed individuals may not use the high-low method. If you are self-employed, do not apply the $329 or $230 amounts to your own return. Self-employed individuals use the regular federal M&IE rates instead, not the high-low employer reimbursement method.
That distinction is not technical trivia. It changes how you build policy, how you reimburse staff, and how you review owner travel records.
The legal authority here comes from IRC §274(d) and Treas. Reg. §1.274-5, applied through Rev. Proc. 2019-48. The rules allow a per diem method to satisfy the amount element of substantiation, but only that element.
You still need support for:
- time
- place
- business purpose
A per diem relieves the amount requirement only. If your expense process does not capture who traveled, where they went, when they traveled, and why the trip had a business purpose, the file is still incomplete.
High-low also applies only within CONUS. OCONUS rates come from other sources and are not covered by Notice 2026-60.
For transportation workers, the special M&IE rates remain unchanged at $80 for CONUS and $86 for OCONUS. The incidental-expenses-only amount stays at $5 per day in both CONUS and OCONUS. The general meal deduction limit is 50% under §274(n), while transportation workers subject to Department of Transportation hours-of-service limits may use an 80% meal deduction. The $5 incidental-only amount is not subject to that reduction.
The accountable plan rules matter more than the rate table
The rate change gets attention. The accountable plan rules decide whether reimbursements stay off payroll.
If your reimbursement arrangement meets the business connection, substantiation, and return-of-excess requirements, the reimbursements are generally excluded from income and employment taxes. If those rules fail, the arrangement becomes nonaccountable and the amounts become taxable wages.
That is where old policy tables cause trouble. A reimbursement policy that keeps paying a stale high-cost amount after a locality drops off the list can create excess reimbursements that need to be returned or run through payroll.
Use the arithmetic. It clarifies the risk fast.
Example one — four-day trip to a high-cost locality:
- New rate: $329 × 4 = $1,316
- Previous rate: $319 × 4 = $1,276
- Increase: $40
Now isolate the meals portion:
- Meals portion: 4 × $86 = $344
- If the 50% meal limit applies, deductible meal amount = $172
Example two — scale across a team:
- 12 employees
- 40 travel days each per year
- Increase of $10 per day at the high-cost rate
That means:
- 40 × $10 = $400 more per employee per year
- About $4,800 across the team
That is not massive in isolation. It is enough to move a Q4 travel budget, affect expense accruals, and distort month-over-month comparisons if you update systems late.
Example three — newly added locality:
- Tucson, Arizona now qualifies as high-cost
- High-cost reimbursement: $329
- Other CONUS reimbursement: $230
- Difference: $99 per day
- Over four days: $396
The same logic applies to San Mateo/Foster City/Belmont, California. If your system still treats that market as ordinary CONUS, you under-reimburse employees against your stated policy.
Example four — removed locality:
- Panama City, Florida now sits at $230 rather than $329
- Difference: $99 per day
If your policy still pays $329 there, you create $99 per day of unsubstantiated excess. Under accountable plan rules, that excess must be returned to the employer or reported as wages.
Example five — seasonal locality logic:
- Phoenix/Scottsdale is high-cost only from February 1 through March 31
- A July trip is reimbursed at $230, not $329
Systems keyed to “city = high-cost” for the full year will overpay. That is a setup problem, not a tax theory problem.
The transition rule gives you a choice — but not total flexibility
There is a limited transition rule for travel from October 1 through December 31, 2026. If a payor used the per diem or high-low method during the first nine months of 2026, the payor may either:
- continue using the Notice 2025-54 rates and locality list through December 31, 2026, or
- adopt the Notice 2026-60 rates effective October 1, 2026
That sounds broad. It is not.
The method must stay the same for that employee during the transition period. Only the rate set is optional. In other words, you can choose the old or new rate schedule during the transition window if you qualify, but you do not switch the employee from one substantiation method to another inside that period just because it is convenient.
Consistency matters. Document the election in writing and apply it consistently to all employees reimbursed under that method through the transition period.
There is also a stricter rule for the transportation industry rates. If a taxpayer used the special transportation industry rates during the first nine months of 2026, those same rates must continue through December 31, 2026.
For most small and mid-sized businesses, the practical question is simple: do you want cleaner Q4 reporting using the new rates immediately on October 1, or do you want to hold the old rate set through year-end and change on January 1 operationally while still recognizing the notice’s effective period? Either path needs documentation.
And remember — these are annual safe-harbor amounts that change each year. Treat the update as a recurring process, not a one-time memo.
Why this is really a month-end close and financial reporting issue
Travel reimbursements hit more than AP. They hit your close.
When travel is under-reimbursed, over-reimbursed, or coded inconsistently, the damage shows up in out-of-balance expenses, accruals that do not tie, and cleanup entries months later. If excess reimbursements are not returned or reclassified timely, you can also create January W-2 corrections that should have been prevented in October.
That is why this belongs in the monthly close checklist. Good small business bookkeeping is not only about posting transactions — it is about making sure policy, coding, payroll handling, and support all match.
A clean process supports:
- accurate travel and meals expense categories
- cleaner month-end accruals
- stronger P&L accuracy
- more reliable management reporting
- better audit readiness
This is where disciplined monthly bookkeeping services and outsourced bookkeeping add value. LunaSi Accounting, LLC supports business owners with bookkeeping, monthly close, account reconciliations, AP/AR, payroll support, financial reporting services, and Controller/CFO-level support. In practice, that means keeping expense categories, accruals, and reimbursement records clean so your books reflect what actually happened — without turning policy administration into a mess.
That is descriptive, not advisory. LunaSi does not set your per diem policy, determine deductibility, or provide legal or tax advice. But clean records make the policy you choose easier to operate and easier to review.
What Business Owners Should Do Now
The best move is operational. Update before October 1.
Action plan:
- Update per diem tables and high-cost locality lists in your expense or payroll systems before October 1, 2026.
- Decide and document the transition election in writing if you used per diem or high-low during the first nine months of 2026.
- Apply that transition choice consistently to all employees reimbursed under that method through December 31, 2026.
- Map seasonal high-cost periods by month rather than flagging a city as high-cost year-round.
- Confirm your reimbursement policy still satisfies accountable plan requirements — business connection, substantiation, and return of excess — so reimbursements stay off W-2 wages.
- Check whether your team uses the M&IE-only rate where lodging is booked separately.
- Reconcile travel accruals at month-end so Q4 expense trends stay accurate.
- Re-budget Q4 travel spend based on the updated rates and the localities your team actually visits.
- Review owner travel separately if you are self-employed — the high-low method is not available for your own return.
- Keep support for time, place, and business purpose even when you use a per diem amount.
One more practical note. If your team handles travel manually in spreadsheets, ask a blunt question — can this be automated? Best-performing finance teams reduce policy errors by embedding date-based locality logic in the expense process, then reviewing exceptions during close.
Getting Started
Start small. Update the rate table, review the locality list, and document your transition choice before the first October reimbursements are processed.
That one reset prevents overpayments, protects your monthly close, and keeps your financial reporting faster and cleaner over time. If you need help keeping expense records, accruals, and monthly close work organized, contact LunaSi Accounting, LLC.
This content is for general informational purposes and is not legal, tax, or accounting advice. Consult a qualified professional for your specific situation.
25.09.2026