Per Diem & Stipend Reference

Per Diem for Contractors: How Stipends Actually Work

Per diem is a fixed daily allowance an employer pays a worker to cover lodging, meals, and incidental expenses on assignments away from home, instead of reimbursing receipts one by one. Structured correctly, it is tax-free to the worker and fully deductible to the payer. Structured incorrectly, it is simply wages the IRS has not caught up with yet, plus penalties. The reference tool above shows the six scenarios staffing agencies actually encounter. The guide below explains the rules behind those cards: where the official rates come from, what makes a stipend tax-free, and where agencies get burned.

Where the official rates come from

Per diem rates are set by location, and by three different federal agencies depending on where the assignment is. The General Services Administration (GSA) publishes rates for the continental U.S., updated each federal fiscal year on October 1. The Department of Defense sets rates for Alaska, Hawaii, and U.S. territories. The State Department sets rates for foreign locations and updates them monthly.

The detail that trips people up: rates are locality-based, not statewide. There is no single “Alabama per diem rate” — there is a rate for each county or city, plus a standard rate that applies everywhere no specific rate is listed. High-cost metros carry higher rates; most of the country falls under the standard rate. Each locality rate splits into a lodging component and a meals-and-incidentals (M&IE) component, and the first and last day of travel use a reduced M&IE amount. Because these numbers change on a schedule, the smart move is to always pull them live from the official tables — that is exactly what the Rate Helper above does — rather than trusting any article’s copied numbers, including ours.

The accountable plan: what makes a stipend tax-free

Per diem is not automatically tax-free. It is tax-free only when paid under what the IRS calls an accountable plan, which has three requirements:

• Business connection. The allowance covers deductible business expenses — travel away from the worker’s tax home on the employer’s business. A stipend paid to someone who is not actually traveling for work fails immediately.
• Substantiation. The worker accounts for the expenses within a reasonable time. The whole point of per diem is that it substantiates the amount automatically when it is at or below the federal rate — no meal receipts needed — but the time, place, and business purpose of the trip still have to be documented, typically through an expense report or assignment record.
• Return of excess. Anything advanced above what the rules allow has to be returned within a reasonable time, or the excess becomes taxable wages.

Pay per diem above the federal rate for the locality and the excess portion is wages, subject to withholding and payroll taxes. Skip the substantiation and the entire amount is wages. This is the single most common per diem failure in staffing: the allowance is real, the travel is real, but the paperwork discipline is not, and an audit recharacterizes years of “tax-free” stipends as unpaid payroll tax.

The tax home test and the one-year rule

Tax-free travel stipends require the worker to be traveling away from their tax home — generally, the area of their main place of work — on a temporary assignment. Two traps live inside that sentence:

The tax home trap. A worker who has no fixed home base — who moves assignment to assignment with no residence they maintain and duplicate expenses for — is considered itinerant. Their tax home travels with them, they are never “away from home,” and no stipend paid to them qualifies as tax-free, no matter how carefully the rates were looked up.

The one-year rule. An assignment is temporary only if it is realistically expected to last one year or less — and actually does. The moment an assignment is expected to exceed a year, it becomes indefinite and stipends become taxable from that point forward, including the day expectations changed, not just after month twelve. Extensions are where this bites: a 9-month contract extended to 15 months converts the stipend to wages on the day the extension is agreed. The scenario cards above flag exactly this with the one-year-risk chips.

Travel nurse and healthcare stipends

Healthcare travel is where per diem is most visible and most aggressively packaged. The standard structure is a lower taxable hourly rate plus tax-free housing and M&IE stipends, which only works when the clinician maintains a genuine tax home — typically meaning they keep and pay for a residence in their home area while duplicating expenses on assignment — and stays inside the one-year rule at any single location. A clinician working a local contract within commuting distance of home has no duplicate expenses and no tax-free stipend eligibility, no matter what the recruiter promised. Searchers looking for “travel nurse stipends by state” are usually looking for the locality rates — which vary by city and county, not state — and those live in the GSA tables the Rate Helper opens.

Agencies packaging pay this way carry the compliance weight: stipend eligibility questions at onboarding, assignment-length monitoring, and rate-cap discipline. If you run a healthcare firm, our guides on starting a locum tenens agency and an allied health staffing agency cover how stipends fit the broader pay package.

Per diem for 1099 contractors

Self-employed contractors can use per diem too, but under different math: a 1099 contractor deducts M&IE per diem on Schedule C in place of tracking meal receipts, but cannot use the lodging per diem — lodging requires actual receipts for the self-employed. And a company paying a 1099 contractor a “tax-free stipend” as if they were a W-2 traveler is stacking two compliance problems: the stipend treatment is the contractor’s own tax matter, not the payer’s to structure, and dressing employee-style pay packages on 1099 workers is a classic misclassification signal. If your pay structure is starting to look like employment, the classification question comes first — try our free AI Worker Classification Tool — and getting it wrong costs far more than any stipend saves.

Proration, minimum hours, and the operational side

The tax rules are only half the job. The operational half is what actually consumes an agency’s week: stipends tied to minimum-hour eligibility, prorated when a clinician works a partial week, reduced or withheld when the full schedule is not worked, split correctly between taxable and non-taxable lines on every check, and reported cleanly on the invoice so the client’s bill matches the assignment terms. Doing this by hand across dozens of workers, multiple states, and weekly payroll is where errors breed — and stipend errors are not quiet errors, because every one touches a worker’s paycheck and a tax filing.

When per diem goes wrong

The failure modes are consistent: stipends paid without a qualifying tax home, assignments that quietly crossed the one-year line, allowances above the locality rate with no excess returned, missing substantiation, and flat “stipends” that never varied with location or schedule — which look to an auditor exactly like disguised wages. The consequence in every case is the same: recharacterization as wages, with back payroll taxes, penalties, and interest landing on the payer. For a staffing agency, that is a liability multiplied across every placed worker on every affected assignment.

Per Diem FAQ

This page is a practical summary, not tax or legal advice. Confirm policy and current rates before paying stipends. Maintained by BOSS — Back Office Staffing Solutions; last reviewed August 2026.