IRS Raises High-Low Per Diem to $329/$230 on October 1: What Notice 2026-60 Means for Your Accountable Plan

Your employee flies to a client site on October 2, and you reimburse the trip at the same daily rate you used all summer. Nothing looks different — until your year-end review reveals every reimbursement since October was calculated against last year's IRS rates, and the excess handling on your books is wrong in the other direction than you expected. The IRS has now raised the simplified per diem rates for the October 2026 through September 2027 travel year, and if your accountable plan hard-codes the old numbers, October 1 is the day it quietly goes stale.

On September 24, 2026, the IRS published Notice 2026-60, setting the special per diem rates for the period from October 1, 2026, through September 30, 2027. Here is what changed, how the high-low method works, and the updates your reimbursement policy and bookkeeping need before the first October trip.

What Changed on October 1​

The headline change is to the high-low substantiation method — the simplified alternative that lets employers reimburse lodging, meals, and incidental expenses (M&IE) at one of two flat daily rates for travel within the continental United States (CONUS), instead of looking up the federal rate for every city.

A few things stand out. The total allowances rose modestly — $10 a day in high-cost cities, $5 elsewhere — while every meal and incidental component stayed exactly flat. That means the entire increase is attributable to lodging costs. For an employee spending 20 nights a year in high-cost cities, the added allowance is roughly $200 a year: not decision-changing money, but enough that a policy still citing $319 will under-reimburse (or misreport) every trip.

The threshold for what counts as a high-cost locality also moved up. A locality now qualifies when its federal per diem rate is $280 or more, up from $272 last year — a reminder that the high-low list tracks underlying federal lodging rates, not a fixed roster of expensive cities.

The High-Cost Locality List Got a Shake-Up​

Because travel costs shift every year, the IRS revises the high-cost locality list annually. For 2026–2027:

Added to the high-cost list:

• Tucson, Arizona
• San Mateo, Foster City, and Belmont, California
• Albuquerque, New Mexico
• Cody, Wyoming

Removed from the list:

• Panama City, Florida — now reimbursed at the $230 "other locality" rate

Seasonal windows changed for fifteen localities that kept high-cost status but only for a different portion of the calendar year, including Napa, South Lake Tahoe, and Yosemite National Park in California; Aspen, Steamboat Springs, and Telluride in Colorado; Fort Myers in Florida; Falmouth in Massachusetts; Toms River in New Jersey; New York City; Philadelphia; and Hilton Head in South Carolina.

The seasonal-window changes are the detail most likely to trip up a small business. If your employee attends the same annual conference in the same city every year, the correct rate can flip from one year to the next — or even depend on which month the event falls in. When a trip straddles the boundary, the rate follows the locality's status on each travel day, so a single expense report can legitimately mix $329 days and $230 days. Your reimbursement form should capture travel dates per day, not just a trip total, so the right rate applies to each night.

How the High-Low Method Actually Works​

The high-low method is one of two ways to use per diem rates for substantiation. The regular method uses the exact federal per diem rate for the specific locality of travel; the high-low method collapses the whole country into the two flat rates above. Employers choose per employee and must apply the chosen method consistently — you cannot use high-low for one trip and city-specific federal rates for the next trip by the same employee in the same calendar year.

Understanding what per diem does and does not prove is essential:

Per diem substantiates the amount — and only the amount. When you reimburse at or below the applicable federal rate under an accountable plan, the IRS deems the dollar amount substantiated. No hotel receipt is required to justify the number.

You must still substantiate time, place, and business purpose. For every trip, your records still need the dates of travel, the destination, and the business reason. A per diem payment with no record of where anyone went or why is not substantiated, and the "we pay per diem so we don't need records" shortcut is one of the most common ways small businesses lose the tax-free treatment.

Amounts above the federal rate are wages. If you reimburse more than the applicable rate, the excess is treated as taxable compensation: it must be reported as wages, subjected to withholding, and included on Form W-2. This is the mechanical reason your policy must track the October 1 change — the line between tax-free reimbursement and taxable wages just moved by $10 and $5 a day.

Lodging, meals, and incidentals travel together. The $329 and $230 figures cover lodging plus meals and incidental expenses (M&IE). If you reimburse lodging at actual cost and want per diem for meals only, the M&IE-only rates ($86 high-cost, $74 elsewhere) apply instead. Incidental expenses — tips to porters, baggage carriers, and hotel staff — can also be reimbursed alone at $5 a day when that is all you are covering.

The Accountable Plan Rules That Keep Reimbursements Tax-Free​

Per diem rates only produce tax-free reimbursements inside an accountable plan. Without one, every reimbursement is wages from the first dollar, regardless of the rate. An accountable plan must satisfy three requirements:

1. Business connection. Reimbursements cover only expenses incurred for your business — deductible employee business expenses paid or incurred while performing services for you.

2. Substantiation. Employees account for each expense within a reasonable time: the amount (deemed substantiated at or below the federal rate), plus the time, place, and business purpose documented as described above.

3. Return of excess. Employees return any amount paid in excess of substantiated expenses within a reasonable time. Advances for a trip that gets canceled, or advances exceeding the federal-rate allowance, must come back — otherwise the plan fails and the payments become wages.

"Reasonable time" has regulatory safe harbors many small businesses adopt directly: advances within 30 days of the expense, substantiation within 60 days after the expense is paid or incurred, and return of excess within 120 days. Writing these deadlines into your policy removes all argument about what reasonable means.

Put the plan in writing. The IRS does not strictly require a written document, but an unwritten "we reimburse travel" understanding is nearly impossible to defend when the three requirements above are tested. A one-page policy stating the rates, the substantiation employees must submit, and the deadlines for advances and excess returns is one of the highest-value pages in a small business's files.

If You Are Self-Employed, the Rules Are Narrower​

The high-low lodging allowance is designed for employers reimbursing employees. If you are a sole proprietor, a partner, or an LLC member taxed as either, you cannot use per diem to substantiate your own lodging — your hotel stays must be deducted at actual cost with receipts.

What you can use is the M&IE-only method: deduct the federal meals-and-incidentals rate for your destination ($86 in high-cost localities, $74 elsewhere for 2026–2027) instead of tracking every meal receipt. Meals remain subject to the 50% limitation discussed below, and you still need records of the time, place, and business purpose of each trip.

One common trap: an S corporation owner who is also an employee. In that dual role, the corporation can reimburse you as an employee under its accountable plan — including lodging per diem — which is a meaningfully better result than the sole-proprietor rule. But the corporation needs a real accountable plan with real substantiation; owner reimbursements with no expense reports are a standing invitation to reclassification.

The 50% Meal Limit Still Applies — So Split Your Books​

Even when the full per diem is tax-free to the employee, the employer's deduction for the meal portion is limited to 50% under Section 274(n). That is why Notice 2026-60 specifies the $86 and $74 meal components separately: those are the amounts to which the 50% haircut applies.

Concretely, for a five-day trip to a high-cost city reimbursed at $329 a day ($1,645 total), $430 of that total is deemed meals ($86 × 5) and only $215 of it is deductible; the remaining $1,215 is fully deductible. Claiming the whole $1,645 overstates the deduction by $215 per trip — small per trip, material across a traveling team over a year.

This is where bookkeeping discipline matters more than tax knowledge. Your books should record the lodging and meal components of each per diem reimbursement as separate postings from the start, not as a single "travel" line you promise to split at tax time. Nobody reliably reconstructs that split in April. If your chart of accounts has distinct travel-lodging and travel-meals categories and every expense report posts to both, the 50% limitation falls out of the ledger automatically instead of requiring an error-prone year-end exercise.

Common Mistakes That Turn Per Diem Into Taxable Wages​

• Reimbursing above the rate without wage treatment. The most mechanical error: policy still cites $319, actual federal rate is $329, and nobody notices — or the reverse after a locality is removed from the high-cost list. Panama City trips reimbursed at $329 after October 1 overpay by $99 a day, and the excess is wages.
• No written accountable plan. Verbal understandings fail the substantiation and excess-return tests under examination. Write the one-page policy.
• Missing business-purpose records. Per diem covers the amount only. Expense reports need dates, destination, and business reason for every trip.
• Using high-low lodging per diem for owners or contractors. Self-employed individuals and independent contractors cannot use per diem for lodging. Paying a 1099 contractor a "$329/day all-in" rate does not create a per diem deduction for them — it is simply gross income they report and deduct actual expenses against.
• Mixing methods for the same employee mid-year. Pick high-low or locality-specific federal rates per employee for the calendar year and stay with it, subject to the transition rules for the final quarter.
• Forgetting the 50% meal limit. Deducting the full per diem total overstates deductions on every return the business files.
• Ignoring seasonal windows. Year-round high-cost treatment for a locality the notice limits to part of the year overpays every off-season trip.

What to Update Before October 1​

Work through this short checklist this week, before the first October trip report lands on your desk:

1. Update the rates in your written policy to $329 high-cost and $230 other-CONUS for travel on or after October 1, 2026, keeping the $86/$74 meal split and $5 incidental-only rate.
2. Refresh the high-cost locality list in the policy — add Tucson, San Mateo/Foster City/Belmont, Albuquerque, and Cody; move Panama City to the standard rate; and flag the fifteen seasonal-window changes for cities your team actually visits.
3. Confirm your expense report form captures per-day dates and destinations, so mixed-rate trips and seasonal boundaries price correctly.
4. Verify your payroll process treats excess over the federal rate as wages, including advances that exceed the allowance and unreturned excess.
5. Split lodging and meals in your chart of accounts if you have not already, so the 50% meal limitation computes from the ledger rather than from memory.
6. Brief anyone who approves travel — managers signing reports need to know the new numbers, not just the bookkeeper posting them.

If you use the regular federal-per-diem method rather than high-low, the companion update is the GSA's FY2027 rate release, which reset the locality-level lodging and M&IE tables on the same October 1 cycle.

Keep Your Travel Spending Audit-Ready From Day One​

Per diem simplifies the amount question, but it concentrates everything else — dates, destinations, business purpose, the lodging-meals split, excess handling — into your records. The businesses that sail through travel-expense scrutiny are not the ones with the cleverest policy; they are the ones whose everyday bookkeeping captures each trip's components completely and consistently.

As you update your accountable plan for the new rates, make sure your financial records keep pace. Beancount.io provides plain-text accounting that gives you complete transparency and control over your financial data — no black boxes, no vendor lock-in. Get started for free and see why developers and finance professionals are switching to plain-text accounting.