Subsistance, Travel Pay, Work Related Expense, Per Diem

[Davc]

The rules state that if the employer pays per diem the expenses are deemed substantiated and the employee must only validate business purpose and place and time of the expenses.

Not quite. The amounts are deemed substantiated, not the existence of the expenses. As my example in my previous post if all of the workers are paid the "per diem" even if they are working in their home area then it is not an accountable plan.

[AJsTax]

I
T

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

The mileage is good if the employer is not paying for it besides the per diem. I just have not had time to enter the references to your questions, but if per diem is used, the expenses are DEEMED substantiated by rule. And all the expenses involved with keeping the house would be covered by the lodging share of the per diem. Could they take the excess on a 2106 if they had all the receipts. Sure, but why stir up a mess if the difference is small after the reimbursement (per diem) is figured in and a hit for 2% of the gross taxable income.
The rules state that if the employer pays per diem the expenses are deemed substantiated and the employee must only validate business purpose and place and time of the expenses. When he turns in a pay sheet showing when and where he worked he is doing that.

[FEDUKE404]

Additional question

Does this guy by any chance sell Amway on the side?

[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

[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

[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.

[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.

[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.

[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.

[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]

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.

[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]

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.

[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]

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......