Department of Labor and Per Diem Payments - The IRS continues its audits

[traveltax]

Though this is a Department of Labor ruling, it is a coordinated effort with the IRS. Staffing agencies are a primary focus of staffing agencies in current audits and many of the issues regard poor screening of an employee's tax home status.

http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Southwest/20140710.xml

[Rennhack]

Thank you for sharing that article.  I read the document, and as I understand it, the applicable part for our industry would be when an employer decides to give an employee 'taxable' per diem for jobs that extend beyond a year, they must then include that extra income as part of the base wage and use it in determining the over time rate.

Example:

John gets a job in January that is expected to last 6 months, and pays $20/hr ST and $30/hr OT as well as $100/day per diem.

In March, it becomes obvious that John's job will last beyond 12 months.  John and his employer then begin to pay taxes on the per diem. -- The wrinkle being that now the per diem must be considered part of his 40/hr base pay, which increases his over time rate.

The $700/week per diem works out to $17.50/hr for 40 hrs. That would increase his over time rate form $30/hr to $30+26.25= $56.25

Is that how you understand the article.

[traveltax]

Thank you for sharing that article.  I read the document, and as I understand it, the applicable part for our industry would be when an employer decides to give an employee 'taxable' per diem for jobs that extend beyond a year, they must then include that extra income as part of the base wage and use it in determining the over time rate.

Example:

John gets a job in January that is expected to last 6 months, and pays $20/hr ST and $30/hr OT as well as $100/day per diem.

In March, it becomes obvious that John's job will last beyond 12 months.  John and his employer then begin to pay taxes on the per diem. -- The wrinkle being that now the per diem must be considered part of his 40/hr base pay, which increases his over time rate.

The $700/week per diem works out to $17.50/hr for 40 hrs. That would increase his over time rate form $30/hr to $30+26.25= $56.25

Is that how you understand the article.

That's one part of it and I have other thoughts as well
1) "per diem" is not defined here. If per diem is a broad statement for anything tax free then it fails to address the common practice of excluding taxable housing / meal allowances from OT calculations when the employee does not have a tax home
2) In staffing, there is a movement toward establishing separate entities for workers that do not qualify for per diem. Forcing the OT on per diems indirectly treats per diems as wages which then incriminates you with the IRS. You cannot simply "roll up" the wage for those without a tax home as that then leads to wage recharacterization issues

[BetaAnt]

If your employer states the project is greater than 12 months, per diem is taxable? What happens if the project crashes before the 12 months? Refund of taxes paid?

If your employer has a short term project that suddenly expands, do you owe taxes on the previous per diem?

If your employer states a project is greater than 12 months but, you only commit for 51 weeks, is per diem taxable?

PD is one of those mysterious payments subject to the whims of the employer and IRS and, interpretation by the employee (which can cause problems).

Some one needs to publish "The Dummies Guide to Per Diem, Expenses, and Taxes for Consultant Workers".

[radbrat]

As it applies to the individuals that do travel, and are legitimate per-diem prescribers.  What is the take on local workers that get more per hour to compensate for the lack of per-diem. They can be compensated $100-150 dollars more per week due to the increase in wages. Just because you are getting tax free per-diem, your total wage/earnings can be a liability due to the expenses incurred. Locals make out due to the lack of expenses that they have to compensate for.

[traveltax]

If your employer states the project is greater than 12 months, per diem is taxable? What happens if the project crashes before the 12 months? Refund of taxes paid?

If your employer has a short term project that suddenly expands, do you owe taxes on the previous per diem?

If your employer states a project is greater than 12 months but, you only commit for 51 weeks, is per diem taxable?

PD is one of those mysterious payments subject to the whims of the employer and IRS and, interpretation by the employee (which can cause problems).

Some one needs to publish "The Dummies Guide to Per Diem, Expenses, and Taxes for Consultant Workers".

Go to my website and look at the FAQ's- I cover most of this

If you know its > 12 months, its all taxable

If it starts at less than 12 months expectations and then changes to where you know you will be there > 12 months, PD is taxable from that point forward

If the contract states > 12 months and you work 51 weeks, its still all taxable since you agreed on paper to a longer time

[traveltax]

As it applies to the individuals that do travel, and are legitimate per-diem prescribers.  What is the take on local workers that get more per hour to compensate for the lack of per-diem. They can be compensated $100-150 dollars more per week due to the increase in wages. Just because you are getting tax free per-diem, your total wage/earnings can be a liability due to the expenses incurred. Locals make out due to the lack of expenses that they have to compensate for.

Can you be more specific in the question? Unless you are just asking for how people feel about the additional compensation.

[radbrat]

Yea....Just stirring the pot.

[SCMasterchef]

So what is the position on a posting that states "one year, not 12 months with a potential for an extenstion" but not guaranteed.  I took a position that the vendor stated to me that it was a one year contract but when arriving at the clients site was told, by the client, that it was only a couple of months and that the Vendor was talking crap.  How does that fit the scope of this discussion?  I have, on several occasions, taken a position that was short term, <12 months, and was on a month to month term for over 12 months.  Normally I claim all per diem as wages and deduct my expenses, as stipulated by the IRS regulations, if it goes over 12 months.

[traveltax]

So what is the position on a posting that states "one year, not 12 months with a potential for an extenstion" but not guaranteed.  I took a position that the vendor stated to me that it was a one year contract but when arriving at the clients site was told, by the client, that it was only a couple of months and that the Vendor was talking crap.  How does that fit the scope of this discussion?  I have, on several occasions, taken a position that was short term, <12 months, and was on a month to month term for over 12 months.  Normally I claim all per diem as wages and deduct my expenses, as stipulated by the IRS regulations, if it goes over 12 months.

Poor advertising is one thing, but in the tax side of things a 4 month contract and a 12 month contract still fit within the definition of "temporary"

Why claim the per diem as wages and then deduct the amounts? That's a worse position bottom line

[radbrat]

There are quite a few tech's that claim per-diem as income and write off the difference in allowable (geographic) federal rates as an unrealized business expense.

[traveltax]

There are quite a few tech's that claim per-diem as income and write off the difference in allowable (geographic) federal rates as an unrealized business expense.

Not smart

OK- say you make 50K and have 33K in per diem (100/day x 330 days).

1) Exclude it from wages as presented on the W2- 50K in taxable income

2a) Include the 33K in income- 83K in income. 33K in deductions are split 60/40 for lodging/meals (19.8/13.2K)
2b) Meals are reduced by 50% (19.8/6.6)
2c) All business expenses reduced by 2% of income (19.8+6.6) - (83*.02)= 24.74K in deductions
2d) If no itemized deductions, then available business expenses must clear standard deduction of 6.1K for singles (24.74K -6.1K) = 18.64K in allowed deductions
Net =64,360 in taxable income

[radbrat]

If I work 330 days then its 6 figures...why no itemized deductions?

[traveltax]

If I work 330 days then its 6 figures...why no itemized deductions?

"Why no itemized deductions" - keeps math simple. the business expenses are itemized deductions, but we need a starting place. The point is, claiming per diem and deducting it is not good. Additionally you are a bigger audit target

6 figures? 100K *2% is a 2k reduction in business expenses

One thing to add- you cannot deduct the lodging per diem on the GSA site- only actual expenses for lodging. Meals are fine

[radbrat]

gotcha...tanx   

[traveltax]

gotcha...tanx   

And I didn't mention AMT that often applies as well

[Rennhack]

One thing to add- you cannot deduct the lodging per diem on the GSA site- only actual expenses for lodging.

So....

If I have 4 nights of lodging that are not reimbursed.  (For example I only get paid per Diem Monday - Friday, but I travel for 2 days there and back, stopping at hotels along the way.)

You are saying that I can not take the GSA lodging rate for those 4 days and put it on line 3 of form 2106.  You are saying that I have to claim the actual amount I paid for the room.  Only the 5 days that I was under the accountable plan and received the GSA rate from my employer are allowed to be the GSA rate?  Is that correct?

And... is there an official document some where that says that specifically, or is that just the obvious interpretation of the law.

[traveltax]

So....

If I have 4 nights of lodging that are not reimbursed.  (For example I only get paid per Diem Monday - Friday, but I travel for 2 days there and back, stopping at hotels along the way.)

You are saying that I can not take the GSA lodging rate for those 4 days and put it on line 3 of form 2106.  You are saying that I have to claim the actual amount I paid for the room.  Only the 5 days that I was under the accountable plan and received the GSA rate from my employer are allowed to be the GSA rate?  Is that correct?

And... is there an official document some where that says that specifically, or is that just the obvious interpretation of the law.

4 scenarios

1) No per diem for lodging en route or on return, but incur lodging expense - claim actual expenses
2) Per diem for lodging equals or exceeds your actual expenses for that day - nothing claimed for that day. Lodging per diem is substantiated because you incurred an expense (keep receipts to prove an expense however)
3) Lodging per diem less than actual expense for the day - claim the expense and claim the per diem received
4) No per diem through the entire contract- claim actual expenses.

Only the employer can use the lodging portion of the per diem tables to determine the payment. Any employee or >10% owner of a company cannot use the lodging portion of the per diem table for their deduction. Look at page 6, Publication 463, first column, 3/4 down the page under the caution symbol:
" There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost"

[Rennhack]

Go to my website and look at the FAQ's- I cover most of this

Your FAQ's are great, I'd love to 'borrow' a couple of them for here, attributing proper source with links of course.
Here is a direct link to his FAQ's: http://www.traveltax.com/html/TaxEdTravelling.html

Favorites:
 "50 mile rule"  I did not know it was an urban myth, thank you for the FACTS.
"Husband and Wife Co-travelers"  Both can LEGALLY get per diem, I didn't think they could (but they do).
"Moving Expense, Am I moving?" loved it, wish I had this info 20 years ago.
"Returning to the same area" was a great read also.  A 3 week break is "not significant", a 7 month beak is "significant". Between there you are rolling the dice.

[Rennhack]

4 scenarios

1) No per diem for lodging en route or on return, but incur lodging expense - claim actual expenses
2) Per diem for lodging equals or exceeds your actual expenses for that day - nothing claimed for that day. Lodging per diem is substantiated because you incurred an expense (keep receipts to prove an expense however)
3) Lodging per diem less than actual expense for the day - claim the expense and claim the per diem received
4) No per diem through the entire contract- claim actual expenses.

Only the employer can use the lodging portion of the per diem tables to determine the payment. Any employee or >10% owner of a company cannot use the lodging portion of the per diem table for their deduction. Look at page 6, Publication 463, first column, 3/4 down the page under the caution symbol:
" There is no optional standard lodging amount similar to the standard meal allowance. Your allowable lodging expense deduction is your actual cost"

I appreciate the extra info and the quoted source.  You are da man!

[hamsamich]

The small company I worked for at SRS recently (2012) for 2 years told all of us if we wanted to come back to work for them and get per diem we had to wait 18 months.  They had some sort of corporate financial lawyer on retention, it came from him.  I think 18 months is overkill.  I actually had a break in my work for 2 months (did an outage they let me come right back). They taxed our per diem as wages after a year, which makes sense, even though I had a 2 month break at 11 months then came back to finish my 2 years.  There aren't any per diem jobs anymore at SRS now I don't think anyway for RP, but this was an if-then type of thing.  That company folded in 2013.

[traveltax]

The small company I worked for at SRS recently (2012) for 2 years told all of us if we wanted to come back to work for them and get per diem we had to wait 18 months.  They had some sort of corporate financial lawyer on retention, it came from him.  I think 18 months is overkill.  I actually had a break in my work for 2 months (did an outage they let me come right back). They taxed our per diem as wages after a year, which makes sense, even though I had a 2 month break at 11 months then came back to finish my 2 years.  There aren't any per diem jobs anymore at SRS now I don't think anyway for RP, but this was an if-then type of thing.  That company folded in 2013.

Remember that a tax home is your "principal place of income" - Travelers maintain tax homes under a narrow exception to that rule for temporary jobs. Too much time and too many visits to the same place create a tax home (principal place of income) regardless of how "temporary" each individual assignment is.

[hamsamich]

Yep my tax home changed that year.

[SloGlo]

spend all the diem, don't worry, bee happy. if you're away from home 'n diem gets tacks yew got an o.t. increase, bee happy.