@AmeliesUncle wrote:
I disagree with Opus. It probably should be tax free.
A "flat monthly rate" is usually just the Federal per-diem amounts (or less). A Per Diem is used in place of receipts, etc. So all you have to 'prove' is that you were out-of-town on business and the satisfies the requirement of the Accountable Plan and would it be tax-free.
As I said before, check with your employer to see if they are doing it under an Accountable Plan. They should be, and pretty much no extra work is required.
This may be correct, I may have overstated. Publication 463 includes the following discussion:
If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all the following conditions apply.
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Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.
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The allowance is similar in form to and not more than the federal rate (defined later).
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You prove the time (dates), place, and business purpose of your expenses to your employer (as explained in Table 5-1) within a reasonable period of time.
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You aren’t related to your employer (as defined next). If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement.
That would mean the following:
The employer can reimburse you for travel expenses using a per diem, and it can be tax-free under the accountable plan rules, as long as the per diem is not more than the federal rate for the area. (The standard meal rate is $60 per day, it may be higher in some areas, you can look up your location here https://www.gsa.gov/travel/plan-book/per-diem-rates )
However, the employer can't give you a tax-free per diem for general living expenses, only for travel. Travel specifically means expected to last and actually does last 1 year or less. If your assignment is extended past the 1 year of the contract, it is not travel any more and the per diem will become taxable income, effective the day that you know the assignment is going to be extended.
Please see accountable and non-accountable expense plans under IRS publication 463 and the travel rules in chapter 1.
https://www.irs.gov/publications/p463#en_US_2019_publink100034117
