I am a federal government employee. When we go on business trips overseas, the government pays us in advance per diem (for lodging, meals, and incidentals) at the standard government rates. However, frequently we are able to find cheaper options and do not spend all of the per diem. While the finance office conducts a close-out meeting with us after the trips to make sure that all of the our expenses were filed, they never ask if we use all of the per diem. The standard practice is to just pocket the unused per diem and, from everyone I talk to, to not report it on taxes. But this doesn't seem right to me. It seems like I should have to report the unused per diem as income somewhere on my federal and state tax returns. I have searched for guidance on this issue online to no avail. Can you provide some insight and direction on this matter?