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Tax Law (Questions About Taxes)/Tax Free Per diem allowance

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Question
Hello, I am a contractor on a W2 basis. When i was hired, i was offered an hourly rate of $42.00 plus a per diem allowance of $18.00 (which was non taxable)per hour with a maximum per week of $720.00 and equaling an hourly rate of $60.00. I do not have to show any receipts for this per diem and my overtime rate was 1.5 times my hourly rate = $90.00 per hour. I was told that i was given this allowance because i reside in RI and work in CT and my commute is 87 miles each way. After informing the company that handles my contract i was told that i was given this allowance because i "said" that i was going to maintain a second residence and that now i may have to pay this back (either the taxes on the per diem or the per diem it self, I'm not sure) . The problem is that i commuted some nights (weekends and Wednesday nights for graduate school) and the other nights i stayed with a friend but i did not pay any of the bills nor gave him any money for the stay. Does this sound like some sort of mistake any where? i cant provide anyone with a proof of address's because i don't have one. Will i have to pay this back?

Answer
Eric,

Thanks for your question.

Sounds like things were not fully explained.  

First, if the assignment in CT is for of undetermined duration or for more than 12 months, the per diem amount is taxable income.  The IRS rule is that your tax home is the place of your new work under these circumstances.  Therefore, none of your travel, lodging, food expenses are deductible so the per diem is fully taxable. And the expenses are not deductible by you.

Second, what is in place here is a non-accountable plan which means that the per diem amounts are taxable anyway.  But if your tax home is still RI, the travel, lodging, and food are deductible.

What I have stated above is tax law.  

The issue with the company about maintaining a second residence is not a tax issue, but a policy issue with the company.  Paying it back would be based on company policy, not tax law.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

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I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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