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Per Diem and Car Allowances: Business Travel and Vehicle Expenses (2025 IRS Guide)

This guide covers “Per Diem and Car Allowances” within business travel and vehicle expenses. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 463 (2025), Travel, Gift, and Car Expenses, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

To be an accountable plan, your employer’s reimbursement or allowance arrangement must include all of the following rules.

Adequate accounting and returning excess reimbursements are discussed later.

An excess reimbursement or allowance is any amount you are paid that is more than the business-related expenses that you adequately accounted for to your employer.

Per Diem and Car Allowances

If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply.

Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.
The allowance is similar in form to and not more than the federal rate (defined later).
You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1) within a reasonable period of time.
You aren’t related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement.

If the IRS finds that an employer’s travel allowance practices aren’t based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you won’t be considered to have accounted to your employer. In this case, you must be able to prove your expenses to the IRS.

Related to employer.

You are related to your employer if:

Your employer is your brother or sister, half brother or half sister, spouse, ancestor, or lineal descendant;
Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock; or
Certain relationships (such as grantor, fiduciary, or beneficiary) exist between you, a trust, and your employer.

You may be considered to indirectly own stock for purposes of (2) if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a member of your family or your partner owns the stock.

The federal rate.

The federal rate can be figured using any one of the following methods.

For per diem amounts:
1. The regular federal per diem rate.
2. The standard meal allowance.
3. The high-low rate.
For car expenses:
1. The standard mileage rate.
2. A fixed and variable rate (FAVR).

Tip:

For per diem amounts, use the rate in effect for the locality where you stop for sleep or rest.

Regular federal per diem rate.

The regular federal per diem rate is the highest amount that the federal government will pay to its employees for lodging and M&IE (or M&IE only) while they are traveling away from home in a particular area. The rates are different for different localities. Your employer should have these rates available. You can also find federal per diem rates at GSA.gov/travel/plan-book/per-diem-rates.

The standard meal allowance.

The standard meal allowance is the federal M&IE rate. For travel in 2025, the rate for most small localities in the United States is $68 per day. Most major cities and many other localities qualify for higher rates. You can find this information at GSA.gov/travel/plan-book/per-diem-rates.

You receive an allowance only for M&IE when your employer does one of the following.

Provides you with lodging (furnishes it in kind).
Reimburses you, based on your receipts, for the actual cost of your lodging.
Pays the hotel, motel, etc., directly for your lodging.
Doesn’t have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck.
Figures the allowance on a basis similar to that used in figuring your compensation, such as number of hours worked or miles traveled.

High-low rate.

This is a simplified method of figuring the federal per diem rate for travel within the continental United States. It eliminates the need to keep a current list of the per diem rates for each city.

Under the high-low method, the per diem amount for travel during January through September of 2025 is $319 (which includes $86 for M&IE) for certain high-cost locations. All other areas have a per diem amount of $225 (which includes $74 for M&IE). For more information, see Notice 2024-68, which can be found at IRS.gov/irb/2024-41_IRB#NOT-2024-68.

Effective October 1, 2025, the per diem rate for certain high-cost locations remained $319 (which includes $86 for M&IE). The rate for all other locations remained $225 (which includes $74 for M&IE). For more information, see Notice 2025-54, which can be found at IRS.gov/irb/2025-41_IRB#NOT-2025-54, and Revenue Procedure 2019-48 at IRS.gov/irb/2019-51_IRB#REV-PROC-2019-48.

Caution:

Employers who didn’t use the high-low method during the first 9 months of 2025 can’t begin to use it before 2026.

Prorating the standard meal allowance on partial days of travel.

The standard meal allowance is for a full 24-hour day of travel. If you travel for part of a day, such as on the days you depart and return, you must prorate the full-day M&IE rate. This rule also applies if your employer uses the regular federal per diem rate or the high-low rate.

You can use either of the following methods to figure the federal M&IE for that day.

Method 1:
1. For the day you depart, add ³/₄ of the standard meal allowance amount for that day.
2. For the day you return, add ³/₄ of the standard meal allowance amount for the preceding day.
Method 2: Prorate the standard meal allowance using any method you consistently apply in accordance with reasonable business practice. For example, an employer can treat 2 full days of per diem (that includes M&IE) paid for travel away from home from 9 a.m. of one day to 5 p.m. of the next day as being no more than the federal rate. This is true even though a federal employee would be limited to a reimbursement of M&IE for only 1½ days of the federal M&IE rate.

The standard mileage rate.

This is a set rate per mile that you can use to figure your deductible car expenses. For 2025, the standard mileage rate for the cost of operating your car for business use is 70 cents ($0.70) per mile.

Fixed and variable rate (FAVR).

This is an allowance your employer may use to reimburse your car expenses. Under this method, your employer pays an allowance that includes a combination of payments covering fixed and variable costs, such as a cents-per-mile rate to cover your variable operating costs (such as gas, oil, etc.) plus a flat amount to cover your fixed costs (such as depreciation (or lease payments), insurance, etc.). If your employer chooses to use this method, your employer will request the necessary records from you.

Reporting your expenses with a per diem or car allowance.

If your reimbursement is in the form of an allowance received under an accountable plan, the following facts affect your reporting.

The federal rate.
Whether the allowance or your actual expenses were more than the federal rate.

The following discussions explain where to report your expenses depending upon how the amount of your allowance compares to the federal rate.

Allowance less than or equal to the federal rate.

If your allowance is less than or equal to the federal rate, the allowance won’t be included in box 1 of your Form W-2. You don’t need to report the related expenses or the allowance on your return if your expenses are equal to or less than the allowance.

However, if your actual expenses are more than your allowance, you can complete Form 2106. If you are using actual expenses, you must be able to prove to the IRS the total amount of your expenses and reimbursements for the entire year. If you are using the standard meal allowance or the standard mileage rate, you don’t have to prove that amount.

Caution:

Form 2106 is only used by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses. Due to the suspension of miscellaneous itemized deductions subject to the 2% floor under section 67(a), employees who don’t fit into one of the listed categories may not use Form 2106.

Example 1.

In April, a member of a reserve component of the Armed Forces takes a 2-day business trip to Denver. The federal rate for Denver is $307 ($215 lodging + $92 M&IE) per day. As required by their employer’s accountable plan, they account for the time (dates), place, and business purpose of the trip. Their employer reimburses them $307 a day ($614 total) for living expenses. Their living expenses in Denver aren’t more than $307 a day.

Their employer doesn’t include any of the reimbursement on their Form W-2 and they don’t deduct the expenses on their return.

Example 2.

In June, a fee-basis local government official takes a 2-day business trip to Boston. Their employer uses the high-low method to reimburse employees. Because Boston is a high-cost area, they are given an advance of $319 (which includes $86 for M&IE) a day ($638 total) for their lodging and M&IE. Their actual expenses totaled $700.

Since their $700 of expenses are more than their $638 advance, they include the excess expenses when they itemize their deductions. They complete Form 2106 (showing all of their expenses and reimbursements). They must also allocate their reimbursement between their meals and other expenses as discussed later under Completing Form 2106.

Example 3.

A fee-basis state government official drives 10,000 miles during 2025 for business. Under their employer’s accountable plan, they account for the time (dates), place, and business purpose of each trip. Their employer pays them a mileage allowance of 40 cents ($0.40) a mile.

Because their $7,000 expense figured under the standard mileage rate (10,000 miles x 70 cents ($0.70) per mile) is more than their $4,000 reimbursement (10,000 miles × 40 cents ($0.40)), they itemize their deductions to claim the excess expense. They complete Form 2106 (showing all their expenses and reimbursements) and enter $3,000 ($7,000 − $4,000) as an itemized deduction.

Allowance more than the federal rate.

If your allowance is more than the federal rate, your employer must include the allowance amount up to the federal rate under code L in box 12 of your Form W-2. This amount isn’t taxable. However, the excess allowance will be included in box 1 of your Form W-2. You must report this part of your allowance as if it were wage income.

If your actual expenses are less than or equal to the federal rate, you don’t complete Form 2106 or claim any of your expenses on your return.

However, if your actual expenses are more than the federal rate, you can complete Form 2106 and deduct those excess expenses. You must report on Form 2106 your reimbursements up to the federal rate (as shown under code L in box 12 of your Form W-2) and all your expenses. You should be able to prove these amounts to the IRS.

Caution:

Example 1.

Sasha, a performing artist, lives and works in Austin. In July, the employer sent Sasha to Albuquerque for 4 days on business. The employer paid the hotel directly for Sasha’s lodging and reimbursed $90 a day ($360 total) for M&IE. Sasha’s actual meal expenses weren’t more than the federal rate for Albuquerque, which is $80 per day.

The employer included the $40 that was more than the federal rate (($90 − $80) × 4) in box 1 of Sasha’s Form W-2. The employer shows $320 ($80 a day × 4) under code L in box 12 of Form W-2. This amount isn’t included in income. Sasha doesn’t have to complete Form 2106; however, Sasha must include the $40 in gross income as wages (by reporting the total amount shown in box 1 of their Form W-2).

Example 2.

Another performing artist, Ari, also lives in Austin and works for the same employer as in Example 1. In May, the employer sent Ari to San Diego for 4 days and paid the hotel directly for the hotel bill. The employer reimbursed Ari $85 a day for M&IE. The federal rate for San Diego is $80 a day.

Ari can prove that actual non-entertainment-related meal expenses totaled $380. The employer’s accountable plan won’t pay more than $75 a day for travel to San Diego, so Ari doesn’t give the employer the records that prove that the amount actually spent was $380. However, Ari does account for the time (dates), place, and business purpose of the trip. This is Ari’s only business trip this year.

Ari was reimbursed $340 ($85 × 4 days), which is $20 more than the federal rate of $320 ($80 × 4 days). The employer includes the $20 as income on the employee’s Form W-2 in box 1. The employer also enters $320 under code L in box 12 of the employee’s Form W-2.

Ari completes Form 2106 to figure deductible expenses and enters the total of actual expenses for the year ($380) on Form 2106. Ari also enters the reimbursements that weren’t included in income ($320). Ari’s total deductible meals and beverages expense, before the 50% limit, is $96. Ari will include $48 as an itemized deduction.

Example 3.

Palmer, a fee-basis state government official, drives 10,000 miles during 2025 for business. Under the employer’s accountable plan, Palmer gets reimbursed 75 cents ($0.75) a mile, which is more than the standard mileage rate. The total reimbursement is $7,500.

The employer must include the reimbursement amount up to the standard mileage rate, $7,000 (10,000 miles x 70 cents ($0.70) per mile), under code L in box 12 of the employee’s Form W-2. That amount isn’t taxable. The employer must also include $500 ($7,500 − $7,000) in box 1 of the employee’s Form W-2. This is the reimbursement that is more than the standard mileage rate.

If the expenses are equal to or less than the standard mileage rate, Palmer wouldn’t complete Form 2106. If the expenses are more than the standard mileage rate, Palmer would complete Form 2106 and report total expenses and reimbursement (shown under code L in box 12 of their Form W-2). Palmer would then claim the excess expenses as an itemized deduction.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

Publication 463 (2025), Travel, Gift, and Car Expenses: How To Report — Reimbursements — Accountable Plans — Per Diem and Car Allowances — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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