# How Does Per Diem Work for Construction Workers?

Per diem is a fixed daily allowance an employer pays workers who travel away from their tax home overnight, covering lodging, meals and incidentals instead of reimbursing receipts. For construction crews, per diem paid under an accountable plan, at or below federal GSA rates, isn't taxable wages. Workers with no tax home can't receive it tax-free.

## Key takeaways

- Per diem is tax-free to the worker only if the job is away from their tax home, it's paid under an accountable plan, and it doesn't exceed the federal rate.
- From October 1, 2026 (federal FY 2027), the standard GSA rate for most of the continental U.S. is $181 a day: $113 lodging plus $68 meals and incidentals.
- Under the IRS high-low method, the rates from October 1, 2026 are $329 a day for high-cost areas and $230 elsewhere (Notice 2026-60).
- A job expected to last more than a year isn't temporary, so per diem for it becomes taxable.
- Self-employed owners can use the standard meal allowance for meals but must deduct actual lodging costs, and meals are generally 50% deductible.

> **Which rates these are**
>
> Federal per diem rates run on the government's fiscal year, October 1 to September 30. The rates here are for **FY 2027 (October 1, 2026 – September 30, 2027)** from GSA, and the IRS high-low rates in **Notice 2026-60** for the same period, with FY 2026 rates for comparison. Checked October 12, 2026. This is general information, not tax or payroll advice. Have your CPA or payroll provider set up your plan.

## What is per diem in construction?

When a general contractor or specialty contractor sends a crew to a job too far to drive home from each night, the workers have extra costs: a motel, meals out, laundry. Instead of collecting every receipt, many employers pay a flat daily amount. That's per diem. Done right, it's a reimbursement, not wages: no income tax withholding, no Social Security or Medicare, and no W-2 box 1 income for the worker.

Done wrong, the IRS treats it as wages, and the employer owes back payroll taxes. Three tests decide which.

## Test 1: Is the worker away from their tax home?

Your **tax home** is your regular place of business or work, not necessarily where your family lives. Per diem is only tax-free when the worker travels away from the general area of their tax home long enough to need sleep or rest.

If a worker has no regular place of work, Publication 463 uses three factors to decide whether the home where they regularly live is their tax home:

1. They do part of their work in the area of that home and live there while doing it.
2. They have living expenses at that home that they duplicate when work takes them away.
3. They haven't abandoned the area: family lives at the home, or they often stay there.

Meet all three and that home is their tax home. Two of three depends on the facts. Only one, and the IRS treats them as an **itinerant**: their tax home is wherever they're working, so they're never "away from home" and per diem is taxable wages. This catches travelers who live out of a camper and follow jobs from state to state with no home base.

## Test 2: Is the job temporary? The one-year rule

A work assignment is **temporary** if it's realistically expected to last, and does last, **one year or less**. If it's expected to last more than a year from the start, it's indefinite, and the job site becomes the worker's tax home. Per diem paid for an indefinite assignment is taxable.

If a job is first expected to last under a year and later expected to run longer, it's treated as temporary until the expectation changes, then indefinite from that date. That's common on large commercial and infrastructure projects that slip.

## Test 3: Is it paid under an accountable plan?

An accountable plan is the employer's written reimbursement policy. Per Publication 463, it must meet three rules:

1. **Business connection.** It pays only for business expenses incurred while working for you.
2. **Adequate accounting.** Workers substantiate the time, place and business purpose of travel within a reasonable period. The IRS treats 60 days after the expense as reasonable. With per diem, the daily amount stands in for receipts, but dates and locations still have to be documented.
3. **Return of excess.** Workers return any advance beyond what they substantiate, within a reasonable period (120 days is treated as reasonable).

A per diem paid whether or not someone actually travels has no business connection, so it's wages. And if the allowance is figured the way pay is, such as by hours worked, Publication 463 treats it as covering meals and incidentals only, not lodging. Tie per diem to nights away, not to the time card.

## How much per diem can you pay tax-free?

Up to the federal rate for the place where the worker sleeps. You can use the actual GSA rate for each locality, the standard meal allowance (M&IE only, when you pay or reimburse lodging separately), or the IRS high-low method.

**Federal per diem rates for travel in the continental U.S.**

| Rate | FY 2026 (Oct 1, 2025 – Sep 30, 2026) | FY 2027 (Oct 1, 2026 – Sep 30, 2027) |
| --- | --- | --- |
| GSA standard CONUS lodging | $110 | $113 |
| GSA standard M&IE | $68 | $68 |
| GSA M&IE tiers in non-standard areas | $68–$92 | $68–$92 |
| IRS high-low: high-cost locality (total) | $319 (incl. $86 M&IE) | $329 (incl. $86 M&IE) |
| IRS high-low: all other CONUS (total) | $225 (incl. $74 M&IE) | $230 (incl. $74 M&IE) |
| Incidental expenses only | $5 a day | $5 a day |

_Sources: GSA FY 2027 per diem highlights (published September 2026); IRS Notice 2026-60 and Notice 2025-54. About 295 non-standard areas have higher GSA rates. Look up any ZIP code at GSA.gov. Alaska, Hawaii and other non-CONUS rates are set by the Department of Defense._

Partial days: for the days a worker travels out and back, the M&IE amount is prorated. One IRS-approved method is 3/4 of the daily M&IE rate for each travel day.

> **Example: an electrical crew on an out-of-town job**
>
> This is an illustrative example. An electrical contractor based in one city wins a four-month job at a distribution center 180 miles away, in a standard-rate area. Three electricians who live and work out of the home shop stay near the site Monday through Thursday nights and drive home Friday. The job is expected to take four months, so it's temporary.
>
> Under the company's written accountable plan, starting in October 2026 each worker gets the FY 2027 standard rate: $113 lodging + $68 M&IE = **$181** for each full day away, with 3/4 of the M&IE ($51) for travel days.
>
> A week of four nights works out to $113 × 4 lodging = $452, plus M&IE of $51 (Monday) + $68 × 3 (Tuesday–Thursday) + $51 (Friday) = $306. **Total: $758 per worker per week**, not wages, as long as workers log their travel dates and location. The employer deducts it, with the M&IE part treated as meals and generally 50% deductible.

## Per diem for self-employed contractors and owners

If you're self-employed and travel overnight for work, you deduct your own travel costs on Schedule C. You can use the **standard meal allowance** (the federal M&IE rate) instead of meal receipts, but there's **no standard lodging amount** for you: lodging is your actual cost, with receipts. Meals are generally 50% deductible either way.

If you own more than 10% of an S corporation that pays you a per diem, you're treated as related to your employer, and you must be able to prove your actual expenses to the IRS even if you accounted to the company. Ask your CPA how to set that up.

## Per diem by trade

**Where per diem comes up in the trades**

| Trade | Common situation | Watch for |
| --- | --- | --- |
| Roofing | Storm crews traveling to hail and hurricane zones | Workers with no home base may be itinerant, so per diem would be taxable. |
| Electrical | Commercial, solar and utility projects out of town | Multi-year projects aren't temporary from day one. |
| HVAC | Commercial installs and startups in other cities | Pay M&IE only when the company books and pays the hotel directly. |
| Plumbing | New construction phases in neighboring markets | Daily round trips with no overnight stay aren't per diem travel. |
| Landscaping | Large commercial or municipal contracts out of state | Seasonal workers' tax home still has to be established. |
| Pipeline and heavy civil | Long rotations far from home | Check the one-year rule at the start of each project. |

_Illustrative patterns, not a substitute for advice on your crew's situation._

## Common mistakes

- **Paying per diem to everyone,** including local workers who sleep at home. That's wages.
- **Tying per diem to hours worked.** An hours-based allowance is treated as covering meals and incidentals only. Tie it to days and nights away from home.
- **No written plan and no travel records.** Without them, the whole allowance can be reclassified as wages, with back payroll taxes.
- **Paying more than the federal rate without reporting the excess.** Any amount over the federal rate that isn't substantiated is taxable wages.
- **Ignoring the one-year rule** on long projects.

BRIX tracks crew clock-ins and job hours on payroll-ready timesheets and keeps travel expenses categorized and synced to QuickBooks, which gives your payroll provider and CPA the dates and job locations an accountable plan needs. BRIX doesn't run payroll, file taxes or give tax advice.

- [Crew timesheets](https://www.brix.so/#use-cases): Clock-ins, job hours and payroll-ready timesheets.
- [Bookkeeping and tax help](https://www.brix.so/features/bookkeeping-taxes): Keeps expenses categorized, tracks 1099 subcontractors and sales tax, and reminds you of quarterly estimated tax dates. BRIX does not file taxes or give tax advice.
- [QuickBooks sync](https://www.brix.so/integrations/quickbooks): Syncs customers, invoices and payments with QuickBooks so the books match the jobs.

Related: the [mileage deduction](https://www.brix.so/learn/mileage-deduction-for-contractors) for driving to job sites, [payroll taxes](https://www.brix.so/learn/payroll-taxes), [W-2 vs. 1099](https://www.brix.so/learn/w2-vs-1099), and the [contractor taxes guide](https://www.brix.so/guides/contractor-taxes).

## Frequently asked questions

### Is per diem taxable for construction workers?

Not if it's paid under an accountable plan, for travel away from the worker's tax home on a temporary job, and at or below the federal per diem rate. If any of those fails, or the worker is itinerant with no tax home, the per diem is taxable wages.

### What is the per diem rate for 2026–2027?

From October 1, 2026, the GSA standard rate for most of the continental U.S. is $181 a day: $113 for lodging and $68 for meals and incidentals. Under the IRS high-low method, it's $329 a day for high-cost localities and $230 elsewhere.

### What is a tax home for construction workers?

It's your regular place of work, not necessarily where you live. If you have no regular place of work, the IRS looks at whether you work near, pay to keep up, and regularly return to your main home. Fail those tests and you're itinerant, with no tax home to be away from.

### Can you get per diem on a job that lasts more than a year?

Not tax-free. A job realistically expected to last more than a year is indefinite, so the job location becomes your tax home and per diem becomes taxable. A job first expected to last under a year becomes indefinite from the date that expectation changes.

### Can self-employed contractors use per diem?

Partly. Self-employed people can use the federal meal and incidental expense rate instead of meal receipts, generally 50% deductible, but must deduct actual lodging costs with receipts. There's no standard lodging rate for the self-employed.

### Does per diem have to be reported on a W-2?

Per diem paid under an accountable plan, up to the federal rate and properly substantiated, isn't reported as wages. Any amount above the federal rate that isn't substantiated, or anything paid under a nonaccountable plan, is wages and goes on the W-2.

## Related

- [Mileage Deduction for Contractors: 2026 Rates and Rules](https://www.brix.so/learn/mileage-deduction-for-contractors)
- [Contractor Tax Deductions: The Complete List for 2026](https://www.brix.so/learn/contractor-tax-deductions-list)
- [What Are Payroll Taxes?](https://www.brix.so/learn/payroll-taxes)
- [W-2 vs. 1099: What's the Difference for Contractors?](https://www.brix.so/learn/w2-vs-1099)
- [What Is Self-Employment Tax?](https://www.brix.so/learn/self-employment-tax)
- [Taxes for Contractors: The 2026 Guide for Self-Employed Trades Owners](https://www.brix.so/guides/contractor-taxes)
- [How to Hire Technicians and Build a Pay Plan That Works](https://www.brix.so/guides/hire-and-pay-technicians)
- [Bookkeeping for contractors that keeps your books tax-ready all year](https://www.brix.so/features/bookkeeping-taxes)
- [Quarterly Estimated Tax Calculator for Self-Employed Contractors (2026)](https://www.brix.so/tools/quarterly-estimated-tax-calculator)
- [Self-Employment Tax Calculator (2026)](https://www.brix.so/tools/self-employment-tax-calculator)

## Sources

- [IRS: Publication 463 (2025), Travel, Gift, and Car Expenses (tax home, temporary work, accountable plans, per diem)](https://www.irs.gov/pub/irs-pdf/p463.pdf) (checked 2026-10-12)
- [IRS: Notice 2026-60, 2026–2027 Special Per Diem Rates](https://www.irs.gov/pub/irs-drop/n-26-60.pdf) (checked 2026-10-12)
- [IRS: Notice 2025-54, 2025–2026 Special Per Diem Rates](https://www.irs.gov/pub/irs-drop/n-25-54.pdf) (checked 2026-10-12)
- [GSA: FY 2027 per diem highlights](https://www.gsa.gov/system/files/FY2027perdiemhighlights.docx) (checked 2026-10-12)
- [GSA: Per diem rates lookup](https://www.gsa.gov/travel/plan-a-trip/per-diem-rates) (checked 2026-10-12)

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Written by BRIX Editorial Team. Last updated 2026-10-12. General information, not tax, legal or financial advice.
Canonical: https://www.brix.so/learn/per-diem-for-construction-workers