As long as the per diem allowance is in line with the federal per diem rates and the employee is away from home on a temporary assignment, the per diem amount is not taxable as wages and will not appear on W-2 taxable wages.
Link for your reference-
http://www.irs.gov/newsroom/article/0,,id=164208,00.html
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
Per diem generally includes lodging, meals and incidental expenses associated with business travel. Yes, as long as the per diem allowance is not over the federal prescribed rates this would not be taxable.
Infact, in addition to the per diem the company can pay your actual airline tickets and car rentals or reimburse your for your actual expenses for such expense incurred for business purpose.
Certified Public Accountant (CPA)
CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..