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my TDY was supposed to last 18 months and it ended up being

Customer Question
cut short, and lasted less...
my TDY was supposed to last 18 months and it ended up being cut short, and lasted less than a year. So in addition to having to go back home unexpectedly, do I still have to pay taxes on my per diem?
Submitted: 6 years ago.Category: Tax
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Answered in 4 minutes by:
7/1/2011
Tax Professional: Robin D., Senior Tax Advisor 4 replied 6 years ago
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,890
Experience: 15years with H & R Block. Divisional leader, Instructor
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Robin D :

Please explain your work situation. Did you work overseas or in the US?

Customer:

in the US

Robin D :

Why were you required to end the time short?

Customer:

budget cuts

Robin D :

If yo were on a temporary assignment and you were paid for your travel and meals then you can still use those against your income. You will need to include those amounts on Form 2106 and claim them as employee expenses. This then would be used on yoru Schedule A.

Robin D :

The per diem may be added to your W2 amount but you can show them as expenses if you use the Schedule A

Customer:

so the answer is the per diem is still taxeable

Robin D :

Generally, amounts employers pay employees to reimburse them for substantiated business expenses are not subject to income tax or employment tax. For reimbursements for expenses for meals and other incidentals associated with business travel, employees get this exclusion for reimbursements for each day of travel up to the federal per diem rates without having to actually substantiate the amounts of the expenses. However, if an employer pays expense allowances that exceed the federal per diem rates, the excess amounts are subject to income tax and employment tax if they are not repaid to the employer, unless the employee actually substantiates all of the expenses covered by the per diem allowance.

Robin D :

A per diem allowance arrangement that fails to track the excess amounts and does not include the unsubstantiated, unrepaid excess amounts in the employee’s income and wages constitutes a pattern of abuse of the rules for tax-free expense reimbursements. The finding that the arrangement is abusive causes all allowances paid under the arrangement to be subject to income tax and employment tax, not just the excess amounts. So if you were paid more than your expenses that amount will be in your W2.

Customer:

Not sure I am getting an answer on the more than a year versus less than a year question.

Robin D :

The time counts if you expect the assignment to last temporarily. The fact tha it did not last as long as you thought does not count against you in this instance. If it had lasted longer then you might have had to include the perdiem in income because it would not have been a temp assignment. As long as you had to account for the expenses then you should not be taxed on the per diem.
If employers routinely pay per diem allowances in excess of the federal per diem rates, but do not track the allowances and do not require the employees either to actually substantiate all the expenses or pay back the excess amounts, and do not include the excess amounts in the employee’s income and wages, then the entire amount of the expense allowances is subject to income tax and employment tax.

Robin D :

Why do you think that you would have to pay tax because the assignment was shorter?

Robin D :

Are you in the military?

Customer:

because my W2 from the beginning showed my per diem as taxeable since the intent was 18 months (and by the way the per diem is perfectly within the federal rate). When my assignment was cut short, my employer did not revise my W2, so my per diem is added to my income. When I do my tax calculation, I am being hit by the AMT, and cannot deduct the per diem. This situation would not occur if the per diem had not been added to my income. The fact that it is, pretty much mean that they consider the per diem as taxeable even though the asssignment was less than a year. This is what I want to verify.

Robin D :


Per diem payments are not part of the employee’s wages if the payment is equal to or less than the federal per diem rate




Per diem is paid in excess of the allowable standard federal rate.

The IRS regulations listed above cover when the per diem must be included. If your employer continued to pay the perdiem after your return then the extra is taxable. If you did not receive the per diem after you assignment ended then you will need to request a corrected W2.








Payments will be taxable to the employee when any of these situations are true:





No expense report is filed with the employer,





The expense report filed does not include the date, time, place, amount and business purpose of the expense,



 



A flat amount is given to the employee and no expense report is required, or



Robin D :

If the employer continued to pay you the perdiem after your assignment ended then it is all taxable to you. The fact that your assignment eneded early is not in the IRS regulations for thetaxable portion.

Robin D :

Your employer paid the perdiem on the flat fed rate and it appears you were not required to account to the employer for any expense.

Robin D :

The amounts paid to you are taxable. It is unfortunate that the additional amounts placed you in the AMT.

Robin D :

If you can itemize then the perdiem amounts can be used as an employee expense.

Customer:

yes my employer paid the flat rate as long as I was on my assignment (not longer)

Robin D :

If there is a mistake and you really did not receive all the perdiem you are showing on your W2 then you can request a corrected W2 but if you were paid all the perdiem your only help would be to see i f the Form 2106 an dteh Schedule A will assist to lower your tax.

Robin D :

The fact that your assignment was shortened does not change the per diem and the tax

Customer:

so you are saying the per diem is taxeable even for a less than a year assignment since the intent was more than a year.

Customer:

I have a collegue that had a less than a year assignment and his per diem is not taxeable because the employer considers the initial intent.

Robin D :

Yes, unless you can use the employee expense option on the Form 2106 and the Schedule A
I hope this, although not obviously what you hoped for, is helpful

Robin D :

Your collegue is accounting to the employer for the expenses that is why it is not included. If you did not have to give reports on your expenses then your employer just gives you the money and then you must show on your tax return that you used it for expenses.

Robin D :

The fact that the assignment is temporary is only important to show the IRS that you were working away from your regular tax home.

Customer:

no - my collegue is doing exactly what I did. the only difference considered by the employer is the original duration: 360 days for my collegue, 18 months for me.

Robin D :

Then that is an employee - employer situation and not tax.

Customer:

andthe 18 months for me became 360 days.

Robin D :

The iRS rules are stated and if you account to your employer then it doesn't go on your W2 if you do not have to account to your employer then it does. And then you account to the IRS by 2106 to deduct from taxes.

Customer:

so the "original intended duration" is not a tax law thing?

Robin D :

I can not address an arrangement between the other person and the employer.

Robin D :

Not for taxes. It must be internal company thing.

Customer:

this is what I want to make sure about. my employer (certainly in good faith) thinks they ar following the tax laws.

Robin D :

They are. For you and that is the real situation here. For you, if you did not have to account to them for the money then it goes on your W2. If you were required to account for the money an dyour expenses then it would not be on your W2.

Robin D :

http://www.irs.gov/pub/irs-regs/perdiemfaq%26a.prn.pdf
Here is an FAQ form the IRS that covers what generally employers must take into account.

Customer:

again it does not go on the W2, and there is not account needed for the money when the original intended duration is less than a year.

Robin D :

Perhaps you can get your employer to issue you a corrected W2

Robin D :

It goes on the W2 when you do not have to account to your employer.

Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15,890
Experience: 15years with H & R Block. Divisional leader, Instructor
Verified
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