I have recently started a non-profit and am not at all clear of what form I record the Per Diem paid to my employees. Is it tax free for them? It is my companys first quarter and just happens to be the end of the year.

If you are paying per diem, that indicates that you are using a "non-accountable" reimbursement plan, in that you are NOT requiring they file periodic expense reports.

In such a case, per diem is considered to be taxable compensation, subject to both state and federal income taxes (but NOT FICA taxes), and should be reflected on Box 1 and 16 of the W-2.

If you begin to require expense reports, and reimburse them based on those reports, your reimbursement plan then becomes "accountable", and then the reimbursement is tax-free.