As an employee, your employer can reimburse you tax-free for work-related travel that is temporary, meaning it is expected to last, and actually does last, less than 1 year. Travel that lasts more than 1 year, or that has an indeterminate end date, is not reimbursable tax-free. Also, as soon as you decide to extend your assignment past 1 year, the reimbursement is immediately taxable from that point–it doesn't only become taxable after 366 days, it becomes taxable as soon as the expected end date is more than 1 year or is indeterminate.

(In other words, an assignment that is indeterminate, but actually lasts less than a year, was never deductible/tax free in the first place, because it was indeterminate. An assignment that is expected to last less than 1 year, that actually lasts more than 1 year, becomes non-deductible/taxable on day 366 or on the day the expectation changed, whichever comes first.)

The employer can continue to reimburse you, but they must include the cost of your housing, travel, food and other benefits as part of your W-2 taxable wages.

If you are self-employed, you must report all your compensation, even if it is for housing. You can then deduct the housing costs on schedule C as a travel expense. Again, as soon as the expected end date is more than 1 year, or as soon as the expected end date becomes indeterminate, you lose the ability to deduct food and lodging as a travel expense.

brdrokmAuthor

Level 2

I'm a W-2 employee.

My first contract was in Connecticut and started 4/16/2023.

Had two weeks off from 7/17-7/31. Renewed the contract to stay at the same facility, took another week off from10/14-10/21.

Finished that contract 11/4, started a new one in the same state, but 50+ miles away. Am scheduled here until 2/3/24, was planning to take two weeks off, then return to work at the same place on 2/18, for another 13 weeks.

I've read that all of the stipend money would become retroactively taxable, obviously hoping to keep as much as possible. Would like to renew this contract here, but may have to reconsider if it means having to pay so much back. Thanks

Opus 17

Level 15

@brdrokm wrote:

I'm a W-2 employee.

My first contract was in Connecticut and started 4/16/2023.

Had two weeks off from 7/17-7/31. Renewed the contract to stay at the same facility, took another week off from10/14-10/21.

Finished that contract 11/4, started a new one in the same state, but 50+ miles away. Am scheduled here until 2/3/24, was planning to take two weeks off, then return to work at the same place on 2/18, for another 13 weeks.

I've read that all of the stipend money would become retroactively taxable, obviously hoping to keep as much as possible. Would like to renew this contract here, but may have to reconsider if it means having to pay so much back. Thanks

Looking only at the paper you signed and not your intentions, you will have been away from your "tax home" (see publication 463) for less than 1 year up through the end of your current contract on 2/3/24. Once you start the next contract, with a planned end date after 4/16/2023, your assignment is no longer temporary, and any travel supplement that is included with the 4th contract must be included in your W-2 taxable wages. However, this does not make your previous travel supplements taxable.

Looking at your expressed intention to stay in Connecticut past 4/13/24, Connecticut is your new tax home now, and all your travel supplements from the day you made that decision going forward, must be included in your taxable income (whether you made that decision today, or last week or whenever, you should notify your employer to start considering the travel money taxable from that date). However and once again, previous travel money (when you still expected the assignment in Connecticut to be temporary) don't become retroactively taxable.

Whether you file your taxes based on what is put down on paper, or what is in your mind, is up to you.