Per Diem Rates 2026-2027: Can an S Corporation Owner Use Them?

The per diem rates 2026-2027 under Notice 2026-60 are $329 a day for travel to a high-cost locality and $230 a day for any other locality in the continental United States, for allowances paid on or after October 1, 2026. Most employees can be reimbursed at those rates without lodging receipts. A shareholder-employee who owns more than 10 percent of the corporation's stock, directly or by attribution such as from family, generally cannot. Rev. Proc. 2019-48 section 6.07 takes the high-low rates and the lodging-plus-meals per diem away from an employee related to the payor. The owner can still be reimbursed for actual costs, or for actual lodging plus meals and incidentals at up to the federal meals-and-incidentals rate that GSA publishes for each destination.

This post is for CPAs and EAs with closely held S corporation clients. The new rates took effect October 1, and year-end payroll and W-2 review is when these allowances get checked. If the corporation pays its owner a flat $230 a day, that payment may not be the tax-free reimbursement the client thinks it is. Unsupported amounts can end up as wages on the owner's W-2.

What Are the Per Diem Rates 2026-2027 Under Notice 2026-60?

Notice 2026-60 sets the rates for the high-low method, a simplified per diem in which every location in the continental United States is either a listed high-cost locality or "any other locality." Section 5 states that the rates "are $329 for travel to any high-cost locality and $230 for travel to any other locality within CONUS." The notice lists the high-cost localities, each of which has "a federal per diem rate of $280 or more," for a stated portion of the calendar year.

M&IE means meal and incidental expenses. Part of each daily rate is treated as meals because section 274(n) limits the deduction for food and beverages. The notice says the amount of the $329 and $230 rates "that is treated as paid for meals for purposes of § 274(n) is $86 for travel to any high-cost locality and $74 for travel to any other locality within CONUS." A high-low payor that pays an M&IE-only allowance uses the same $86 and $74.

Last year, Notice 2025-54 set the high-low rates at $319 and $225, with the same $86 and $74 meal portion.

Section 6 makes the notice effective for allowances "that are paid to any employee on or after October 1, 2026, for travel away from home on or after October 1, 2026." Section 7 says "Notice 2025-54 is superseded."

Why Does an Accountable Plan Decide the Tax Result?

A reimbursement is tax-free only when it is paid under an accountable plan, an arrangement that meets the three requirements of Treas. Reg. section 1.62-2: business connection, substantiation, and return of amounts in excess of expenses. Rev. Proc. 2019-48 section 2.07 states the result. Meet all three, and "all amounts paid under the arrangement are treated as paid under an accountable plan and are excluded from income and wages." Fail one, and all amounts paid under the arrangement "must be reported as wages or compensation on the employee's Form W-2, and are subject to the withholding and payment of employment taxes."

A per diem satisfies only part of the substantiation requirement. It deems the amount of the expense substantiated. Section 7.01 still requires that "Within a reasonable period of time, the employee also substantiates to the payor the elements of time, place, and business purpose of the travel." A per diem without a travel log is a stipend.

Why Can't a More-Than-10-Percent Owner Use the High-Low Rates?

Section 6.07 of Rev. Proc. 2019-48 removes the two methods most people mean when they say "per diem":

Sections 4.01 and 5 of this revenue procedure do not apply if a payor and an employee are related within the meaning of § 267(b), but for this purpose the percentage of ownership interest referred to in § 267(b)(2) is 10 percent.

Section 4.01 is the full per diem for lodging, meals and incidentals at the federal rate for the locality. Section 5 is the high-low method: the $329 and $230 rates and the $86 and $74 M&IE-only rates.

Section 267(b)(2) relates "An individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual." Put 10 in place of 50 and the test is ownership of more than 10 percent in value of the stock. That describes most owner-employees of a closely held S corporation. An owner at exactly 10 percent, with no attributed stock, falls outside it.

"Directly or indirectly" brings in section 267(c). Under section 267(c)(2), an individual "shall be considered as owning the stock owned, directly or indirectly, by or for his family," and section 267(c)(4) defines family as brothers and sisters, spouse, ancestors, and lineal descendants. As I read those rules together:

• Spouses who own 6 percent each are each treated as owning 12 percent, so both are related to the corporation.
• An adult child on payroll who owns no stock is treated as owning a parent's stock. If the parent owns more than 10 percent, or the child's own family members together do, the child's travel allowance has the same limit.

If the corporation pays a related owner $230 a day anyway, the rate deems nothing substantiated. The owner must prove what each trip actually cost and return any part of the allowance above that. Any part of the allowance the owner neither proves nor returns is wages. If the plan never required the owner to do either, Treas. Reg. section 1.62-2(c)(3)(i) treats every amount paid under it as paid under a nonaccountable plan, and receipts produced later do not fix that. The owner's W-2 already gets scrutiny in a reasonable compensation review. A reclassified travel allowance changes that number after the fact.

How Do You Reimburse an Owner's Travel Tax-Free?

Two methods remain, and neither uses the $329 or $230 rate.

Actual expenses. The revenue procedure is optional. Section 1 says "Taxpayers are not required to use a method described in this revenue procedure. A taxpayer may substantiate actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence." The owner submits receipts, the corporation reimburses what they show, and the owner documents time, place and business purpose.

Actual lodging plus an M&IE-only allowance under section 4.02. Section 6.07 names sections 4.01 and 5. It does not name section 4.02, so as I read it, the M&IE-only allowance stays available to a related owner. An allowance is M&IE-only if, among other conditions, "the payor pays the employee for actual expenses for lodging based on receipts submitted to the payor." The amount deemed substantiated each day is "the lesser of the per diem allowance for that day or the amount computed at the federal M&IE rate for the locality of travel for that day or partial day."

That rate is the trap inside the fix. The federal M&IE rate for the locality is the rate the General Services Administration publishes for each city or county in the continental United States. It is not the $86 or $74 from Notice 2026-60. Those are section 5 rates, which section 5.02 says apply "as if they were the federal per diem rate or the federal M&IE rate for the locality of travel." Section 6.07 takes section 5 away from the owner, so the owner's M&IE allowance comes from the GSA rate for each destination.

In practice: the corporation pays lodging on receipts or books it directly, pays M&IE at no more than the GSA rate, and collects a trip log within a reasonable period. Like the Augusta Rule rental, it is a payment from the corporation to its owner that holds up only with paperwork.

What Do the Rates Do for Employees Who Are Not Owners?

For an unrelated employee, the high-low method works the way clients expect. Section 6.02 says a receipt for lodging "is not required in determining the amount of expenses deemed substantiated at the federal per diem rate" under section 4.01 or 5.01.

Take an employee with no ownership who travels four full days to a locality that is not on the high-cost list, on or after October 1, 2026, at the $230 low rate:

• 4 days x $230 = $920 deemed substantiated, the lesser of the allowance or the rate.
• 4 days x $74 = $296 of that is treated as meals for section 274(n).

Pay $250 a day instead and the extra $20 a day, $80 for the trip, is taxable. Section 8.01 says the portion of an allowance "that exceeds the amount deemed substantiated" for the substantiated days "is treated as paid under a nonaccountable plan and is subject to withholding and payment of employment taxes." The $920 stays tax-free if the employee logs time, place and business purpose. Partial days on departure and return are prorated under section 6.04.

What If the Client Is Self-Employed?

A sole proprietor cannot use a per diem for lodging. Section 1 says self-employed individuals who deduct unreimbursed travel "may use a per diem rate for meals and incidental expenses, or incidental expenses only," and that the revenue procedure "does not provide rules for using a per diem rate to substantiate the amount of lodging expenses only."

The meal rate is the federal M&IE rate for the locality under section 4.03. Section 5.01 says "Employees and self-employed individuals may not use the high-low substantiation method in lieu of the meal and incidental expenses only deduction method described in section 4.03."

Must Every Payor Switch to the New Rates on October 1?

No. Section 5.04 says a high-low payor "must continue to use the same method" for an employee during the last three months of the year. It may use the rates from the first nine months "or the updated rates" for October through December, "if the payor uses the same rates and localities consistently for all employees reimbursed under the high-low method." Section 4.06(1) gives a payor using section 4.01 or 4.02, including a corporation that pays its owner an M&IE-only allowance, a similar choice to keep the earlier CONUS rates "instead of the updated GSA rates," applied consistently.

So a client still paying $319 and $225 for November travel is not automatically wrong. Check that the choice is consistent across the high-low group. Then confirm that no owner above the 10 percent line is in that group at all.

The per diem question for an S corporation client usually turns on one revenue procedure section, one statute and the ownership records. I built Tax Orator to answer questions like this one with citations to the primary sources.