@Deer713 wrote:
Hi, are you saying that after 1 year of work as a W-2 Employee receiving per diem, this may still be untaxed depending on the company?
Is there any reference from the IRS regarding per diem and after 1 year of work? I am a new contractor working as a w2 and this is all so confusing.
First, note that rules for over the road drivers are different, and I'm not considering that here.
For other W-2 workers:
Your employer can reimburse you for travel expenses if they send you on an assignment that
a) is far enough away from your regular workplace so that overnight accommodations are reasonable,
b) is temporary.
If reimbursement is by an accountable plan, and the assignment is temporary, the reimbursement is tax-free. An accountable plan requires that you provide proof to the company of what your expenses are and that they are related to your work. The reimbursement can be actual expenses, or a flat rate per diem, as long as the company follows certain rules.
If the company uses a non-accountable plan, the reimbursement is always taxable, no matter how it is calculated.
If the assignment is not temporary, the reimbursement is always taxable, no matter how it is calculated.
A temporary assignment is one that is expected to last, and actually does last, one year or less. If the assignment is indefinite (no expected end date) then it is not temporary. If the assignment lasts longer than one year, it is not temporary. Suppose you are sent away on a 9 month assignment, and during month 6, the company decides to extend the assignment to 18 months. The first 6 months are temporary (expected to last less than one year), but after the assignment changes, it is no longer temporary, because even though you haven't been away more than 1 year, the expectation has changed.
Basically, if the company wants to sent you away from home for less than one year, they can choose to cover your extra living expenses on a tax-free basis if they follow the rules. (They are not required to cover your expenses, that is between you and them.) But if they send you away for more than 1 year, and they give you money to cover your expenses, that is just a raise or bonus and is taxable like any other raise or bonus.
The company should handle this all on your pay stubs and W-2. You don't do anything on your tax return for this situation. You can't claim a tax deduction if the company adds the per diems to your taxable W-2 wages.
