Per Diem vs. Actual Expenses: Which Saves Travel Nurses More?

The Two Methods for Deducting Living Expenses

When you're on assignment away from your tax home, you have two ways to deduct your meals and incidental expenses: the actual expense method (track and receipt every meal) or the per diem method (use the federal government's daily allowance rate). Both are legitimate — but one usually saves you significantly more money.

Housing works a bit differently. You can deduct actual housing costs (rent, utilities) regardless of which meals method you choose. But understanding how both systems work together is crucial for maximizing your total deduction.

What Is the Per Diem Method?

The per diem method uses the General Services Administration (GSA) rates published for every city and county in the U.S. These rates represent what the federal government considers reasonable daily costs for meals and incidental expenses (M&IE) in each location.

For 2025, GSA M&IE rates range from $59/day in lower-cost areas to $79/day in high-cost cities like San Francisco, New York, and Honolulu. You don't need to keep individual meal receipts when using this method — the GSA rate IS your deduction.

What Is the Actual Expense Method?

The actual expense method is straightforward: you track every meal, snack, coffee, and incidental expense, keep the receipt, and deduct the total. This gives you an exact deduction based on what you actually spent.

The advantage is precision — if you eat out at expensive restaurants every night, your actual expenses might exceed the per diem rate. The disadvantage is the administrative burden: you need a receipt for every single meal, organized by date and assignment.

• • You must keep receipts for every meal and incidental expense
• • Groceries count as meals if eaten during your assignment
• • Tips, delivery fees, and taxes are included in the deduction
• • You can only deduct 50% of actual meal costs (vs. potentially more with per diem)
• • Coffee, snacks, and vending machine purchases count too

The 80% Meals Deduction Rule

Here's where it gets interesting for travel nurses. Under IRS rules, certain transportation workers can deduct meals at 80% instead of the standard 50%. The Department of Transportation (DOT) hours-of-service rules apply to workers who are subject to federal regulations limiting their work hours — and some travel nurses, particularly those working in air ambulance or patient transport roles, may qualify.

For most travel nurses working standard hospital shifts, the 50% limitation applies. But it's worth discussing with your CPA if your role involves any DOT-regulated activities.

Real Example: Phoenix Assignment Comparison

Let's compare both methods for a 13-week assignment in Phoenix, AZ. Nurse Sarah maintains a tax home in Texas and takes an assignment at a Phoenix hospital from January through March.

Actual Expense Method

Sarah tracks every meal carefully. She shops at Fry's for groceries, eats out a few times per week, and spends about $45/day on food. Over 91 days, her total meal expenses are $4,095. At the 50% deduction rate, she can deduct $2,047.

Per Diem Method

Phoenix's 2025 GSA M&IE rate is $64/day. Over 91 days, that's $5,824 in per diem allowance. At the 50% deduction rate, Sarah can deduct $2,912. She doesn't need a single meal receipt.

Sarah saves $865 more using the per diem method — AND she doesn't have to keep 91 days worth of meal receipts. Over a year with three or four assignments, this can mean $2,500–$3,500 in additional deductions.

Housing: Always Track Actual Costs

Unlike meals, most tax professionals recommend tracking actual housing costs rather than using the lodging per diem rate. This is because actual rent, utilities, and related housing costs often exceed the GSA lodging rate, especially in high-cost assignment cities.

• • Monthly rent for temporary housing
• • Utilities (electric, gas, water, internet)
• • Renter's insurance for the temporary unit
• • Furniture rental if the unit is unfurnished
• • Parking fees at your temporary housing
• • Security deposits (deductible when forfeited)

Keep your lease agreement, utility bills, and rent payment receipts. These are the first things an auditor would request if they question your housing deduction.

Tax Home Requirement

None of these deductions work if you don't maintain a tax home. Your tax home is the city or general area where your main place of business is located — typically the location of your permanent residence. You need to show that you have a permanent residence you're duplicating expenses from.

• • You must maintain a permanent residence (owned or rented)
• • You must have significant expenses maintaining that home
• • The IRS looks at whether you actually return to that home regularly
• • A family member's address alone may not qualify
• • Some nurses use a room in a parent's home if they contribute to expenses

How to Choose the Right Method

The decision framework is simple:

• • If you spend less than the GSA rate on meals → Use per diem (larger deduction, less paperwork)
• • If you consistently spend more than the GSA rate → Use actual expenses (but you need EVERY receipt)
• • If you hate paperwork → Use per diem (no individual meal receipts needed)
• • For housing → Track actual expenses (usually better than lodging per diem)
• • You can mix methods: per diem for meals + actual expenses for housing

You must choose one method per assignment and stick with it for the entire assignment. You cannot switch methods mid-assignment.