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Merlo
Merlo, Accountant
Category: Tax
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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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My company pays me per diem which is not taxable. However,

Resolved Question:

My company pays me per diem which is not taxable. However, starting this July, will be my 11th month in the same location for my project. I was informed by my employer that going forward I will see my per diem being taxed. I have the following questions about this:

1. Is there a way to get around this situation so that my per diem is not taxed? My employer briefly mentioned something about possibility of moving to another office location for a month and then relocating back to my current office location in order to maintain the tax free status of my per diem. Is this true? If yes, how exactly does this work?

2. When my per diem becomes taxable, will I have to pay tax on any per diem that I receive going forward OR will I have to also pay tax on tax-free per diem which I have already received in this year?

Thank you for your help.
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
Hello nicksie,

Your per diem is only non-taxable when the assignment you are on is expected to last less than one year. Once you find out that your assignment will last beyond that point, then the per diem amounts are subject to tax. Amounts you have been paid up to this point will continue to be non-taxable.

As far as moving to another location for a month, you may get away with it as far as how your employer handles the taxability of these payments, but if you are ever audited by the IRS, they would likely end up disallowing you to claim this as non-taxable income.

There is nothing written in stone about this issue, and the same question comes up from a number of people who pass through this forum, who are trying to accomplish the same thing as you are.

But the IRS is well aware of this. They would likely take the position that this move was made in an effort to circumvent the rules, and say that you were made aware this position would no longer be less than one year. It just depends on if you are willing to risk having this surface in the event of an audit.

If this was helpful please press the Accept button.

Thank you nicksie.

Customer: replied 5 years ago.

Hello:

 

Thanks for your reply. A few more questions:

 

1. Does the per diem become taxable after 11 or 12 months?

 

2. If I do decide to go ahead with the relocation plan, which address needs to be changed on paper? There are three addresses in question which is what is confusing me. Here's the situation: the first address is my home address on my Company's payroll record which is in PA. Naturally, state tax deducted is for PA on my pay stub. The second address is my temporary apt in WV (which is where my project is). It is to this WV address where my pay stubs get sent. The third address in question is the address of my work location. (Is this something that my company needs to provide to IRS?).

 

Logically, I think it is the third address that needs to be changed in order to maintain the tax free per diem. Technically, can this address can be changed only on paper (for a duration even longer than one month) but I can physically still work from my current location. What are your thoughts?

 

3. How far does the new location needs to be? 50 miles?

 

 

Expert:  Merlo replied 5 years ago.
Hello ricksie,

The per diem becomes taxable as soon as you receive notification or become aware of the fact that the assignment will no longer last less than one year.

As far as your address, this information is not provided to the IRS. The only address the IRS ever sees is the one that you report on your tax return and the one that is used to send your W-2 form. So it will not make a difference whether you change that third address or not.

As far as the new location, there is no regulation which states how far the two jobs need to be apart in miles. The regulations state that the temporary work assignment must be at least 50 miles from your regular home. So wherever you relocate to, as long as you treat that as a separate job location and as long as it is still 50 miles from your regular home, then it qualifies for per diem reimbursement.

However, I would say this. The further away that you can make that new location from your current job site, the better chance you would have of this standing up to an audit. So I would say you would want to go at least 50 miles, since that is what the IRS uses for their guidelines as being away from home.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you nicksie.



Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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