Subsistance, Travel Pay, Work Related Expense, Per Diem

[mblatour]

Hi there,

First of all, sorry about the title, but I'm hoping it will grab the attention of someone who might know this topic a little better.

I have a potential client with some questions regarding deductions. I am starting to feel I might be wrong about their deductibility. I'm hoping some of you out there are familiar with this type of situation and can give me your two cents on the matter.

The husband works on the pipeline and is gone 6 days a week for most of the year. He receives pay for his normal work and then he also receives what is called "subsistance". This is given to him in a separate check, with no taxes taken out and is not reported on his W-2. The subsistance is paid for at $100 per day, for every day that he actually works (doesn't matter the amount hours he works in that day). We're talking about a pretty good size chunk here.

When the husband is out of town (usually works in 2 or 3 other states per year), he either will stay in a travel trailer/camper that he tows to the city he's working in. He and his wife pay interest on the loan for the camper (deductible second home interest?). If he doesn't stay in the trailer (say he's working in a state down south somewhere), he'll stay in a rented house that he splits with another co-worker. They also split the rental expense of furnishings for the house. A rental company drops off a TV, furniture, etc. for them to use to the tune of $230 a month. When they are done with the job and are heading home, they call the rental place to come and pick up the rented items.

These folks paid a family member at Block to prepare their return for a number of years, but she told them that they have to claim the sub-pay as income and pay taxes on it. They ended up owing a large chunk last year because his expenses were not nearly enough to offset the sub-pay. He brings in over 6 figures a year, so you can see where it's important to know to correct tax treatment of their situation.

The whole accountable/non-accountable plan verbage just confuses me when it comes to this type of situation. I've had similar returns with sub-pay in the past and now I'm not sure I've handled them correctly. In fact, my own husband receives some sub-pay for his job as a union foreman sheet metal worker from time to time when he travels away from home to work. Again, it's a check from the company with no taxes taken out.

What are your thoughts? Thanks!!

~Becky

[Gretel]

Let's assume your client has legitimate out of town expenses and the subsistence payments are not included in his W-2.

I think any tax free payment from employer is subject to income taxes to the extend not used for out-of town expenses including per diem for meals.

[Davc]

Assuming he qualifies for away from home expense a properly completed 2106 will send the excess "subsistance" pay to line 7 as wages.

[AJsTax]

A different opinion

Let's review here: The employee works away from home and maintains a home that he returns to on a regular basis and the job locations do not appear to last for more than a year from the information offered. So with that limited information he appears to qualify to temporary work location expenses. He is an employee (receives a W-2) and the Employer pays him a per diem on an accountable plan; ie: he is only paid for the days he actually works. An Employer can pay lodging on a per diem basis, an employee cannot figure on that basis. So the total per diem using standard rates for most of last year was $39 + $70 for a daily total of $109. An employer can pay up to that amount with no other reporting necessary for the employee. That income is reimbursement and Absolutely NOT reportable as long as the employee and the plan qualifies. Those companies know what they are doing and if the amount becomes income they report it as such.
So in my very experienced in these matters Opinion (without a full review of all facts) the per diem is not reportable and whoever prepared the prior return owes the TP a whole lot of interest and penalties back. Block has a guarantee that will pay those. Take the matter with proof to a District supervisor and get their money back......

[JohnH]

I haven't handled one of these in several years and I'm not taking exception to what's been posted, but I'm curious about one thing. Have we eliminated the possiblity that he is an itinerant worker who has no tax home, even though he owns a personal residence? This issue tripped me up a long time ago and I'm still a little gun shy about it, but would like to hear more about the issue if there's anything else to be said.

[AJsTax]

Does not sound like it

I haven't handled one of these in several years and I'm not taking exception to what's been posted, but I'm curious about one thing. Have we eliminated the possiblity that he is an itinerant worker who has no tax home, even though he owns a personal residence? This issue tripped me up a long time ago and I'm still a little gun shy about it, but would like to hear more about the issue if there's anything else to be said.

he returns every week to a home and wife that he maintains. OP said he was gone 6 days a week. So not an itinerant worker.

[mblatour]

documentation source

AJ -

I hear what you are saying but I am still weary. I would like to have something in writing that would define this type of situation (which is really common where I live). It's too big of a deal for me to get wrong. I am surrounded by folks that work in the trades and it's getting much more common for guys to go out of town for work. Especially when our city keeps giving the bids for work in our city away to out of town contractors. Our guys need to go elsewhere. If their subpay is less than per diem and they DO NOT have to report it as income, that would be huge for my tax business.

Am I correct by saying that they don't need receipts for their M&E nor lodging expenses if they take the per diem amount per day?

But then again, if they get say only $50 in subpay and they payout more than that in expenses for meals/lodging, they can then deduct their excess paid as unreimbursed employee expenses. And I suppose visa-versa for if their employer pays them say $150 per day (yeah sure, like that'd happen, lol), which is more than per diem and more than what they actually paid - they'd have some income to report there. Correct?

Thanks for your input.

Becky

[AJsTax]

Wrong , Wrong!!!

The whole purpose of using the safe-harbor method of reimbursing living expenses for employees out of town for the employer is to avoid the type of record keeping hassle you are refering to.

The amount is not included on the W-2 for a reason. IT IS NOT REPORTABLE!!! PERIOD

Al long as the employee is on a temporary location he does nothing unless his expenses are a lot more than the per diem being paid. It matters not if his expenses a lot less. This is a SAFE HARBOR Method.....

Please refer to the rules for this type of situation. I do not have the time to look up any more right now, I am buried. But some of the above information is plain wrong.

[Edsel]

Becky and A.J.

I have deleted the thread that A J refers to as being wrong, and am posting here so that other readers not be confused.

A J, my discussion about Accountable Plans should have been limited to Travel. I have not encountered that much experience (or theory) about temporary living/relocation. Apologies to all. A J, if it helps any, I named my son Andrew Jordan.

[AJsTax]

All is good

I have deleted the thread that A J refers to as being wrong, and am posting here so that other readers not be confused.

A J, my discussion about Accountable Plans should have been limited to Travel. I have not encountered that much experience (or theory) about temporary living/relocation. Apologies to all. A J, if it helps any, I named my son Andrew Jordan.

with the world. I understand now what you were referring to.
thanks. I will try to read the posts more thoroughly next time.

[AJsTax]

Try Rev Proc

Rev proc 2009-47. found that quick in a reference. did not have time to look it up.
Quote" use of the per diem method of reimbursing expenses ELIMINATES the requirement for substantiation of actuall expenses."
Only the time, place , purpose of the trip must be substantiated.

[Gretel]

Rev proc 2009-47. found that quick in a reference. did not have time to look it up.
Quote" use of the per diem method of reimbursing expenses ELIMINATES the requirement for substantiation of actuall expenses."
Only the time, place , purpose of the trip must be substantiated.

This is a good point. As long as the per diem is at or below the Federal allowance. I also think it needs to be an accountable plan. Both might apply here. One of the advantages of employer reimbursement or per diem pay over a deduction on form 2106 is that the employer can use the per diem rate for lodging. If expenses are taken on tax return then lodging can only be used with actual expenses.

I wonder if employer must state if per diem is for lodging and meals or if it can be assumed.

[Davc]

Those companies know what they are doing and if the amount becomes income they report it as such.

Sometimes they do, and sometimes they don't. I had a client receiving per diem payments that were not on his W-2 when the bulk of the payments were for a job less than 3 miles from the home he normally was "Away From". This was from a large construction company. It was explained to me as part of the union contract. Paying in that manner would mean there was no accountable plan.

Less directly pertinent but another example of large companies getting it wrong is my 81 year old client who receives 3 1099-R forms for annuities with the same major insurance company with 1 coded 7, and 2 coded 1. The clients daughter calls them and receives corrected 1099s every year but the situation repeats annually.

[MAJ]

So... How would this apply..

Client lived and worked in Virginia. Gets laid off. Takes a job in NJ at Fort Monmouth on a temporary basis as the Fort will be closing. The jobs will transfer back down to Maryland - much closer to his home.
He lives and works in NJ 5 days a week. Goes home on the weekends. The job is expected to be less than one year. Is he entitled to take per diem expenses if his employer does NOT provide any payment?

Thanks

[mblatour]

Thank you for the replies.....

I am re-visiting this subject because my potential client called me again today to ask about more items they'd like to deduct. Since my original post, I've done a lot more reading about per diem and although this taxpayers particular situation does not seem to fit an accountable plan or nonaccountable plan to a tee, I'm leaning towards accountable plan. And because the per diem (subsistance pay) is under the federal per diem amount for meals and lodging together, it looks to me as if they DO NOT have to report it (so long as the days worked are accounted for). This means A WHOLE LOT LESS income to pay tax on.

My brain is mush right now. Working 2 full time jobs and I've got 2 young sons. I really do appreciate the help from this board, although I know you all are just as busy.

This potential client wants to deduct the following:
Husbands mileage to and from the temporary work locations
His laundry expenses
His dvd collection that he keeps only for these out of town jobs
His books (same reason as line above)
His hair cuts/beard trimmings for certain jobs where he can't have facial hair or long hair
The gifts and souveniers he buys and brings home to his wife and kids
His ATM fees when out of town because he doesn't have a local branch to pull $ from
His clothes (jeans, shirts, etc. - because they get destroyed on the job and tossed out)

I know the answers to the items I just listed, but this is what I am dealing with. Nice people, just misinformed on several items.

I do wonder though..........if the client doesn't list actual expenses (for lodging and meals) on the return - because of per diem covering it - can they still deduct for the rented furnishings while staying at the the rented house? I would think that if they are going with per diem, then the rest of the expenses related to lodging would be thrown out. Or what about the propane that they hook up to the outside of their travel trailer when he's on a different temporary job location? Is that part of the lodging expense covered in per diem?

Thanks again for your thoughts.

Becky