Construction Workers Per Diem?

[ddoshan]

It seems to be very common for construction type workers working away from their normal area to be paid a per diem or flat amount per day they are away. Such as the employer paying them 25 to 80 dollars a day, or whatever, for each day they are away. There does not seem to be any sort of accountantable plan. The employee does not report any expenses to the employer etc. Yet I never see the employer include any of these amounts in or on the W-2. And I confess I do not arbritrarily include any such amounts either. I would deduct these amounts from any amount the client may claim as employee business expense.
What am I missing here? Why isn't the employer including these amounts on the W-2. Should I, do you, include these amounts in wages, if the employer does not. Which they seem to never do.

[Bees Knees]

Why isn't the employer including these amounts on the W-2.

I suggest you read page 8-12 in TTB under the heading "Per Diem." If those rules are followed, then the employer does not include it on the W-2, and the employee does not take a deduction for the travel expenses reimbursed by the per diem.

[ddoshan]

I suggest you read page 8-12 in TTB under the heading "Per Diem." If those rules are followed, then the employer does not include it on the W-2, and the employee does not take a deduction for the travel expenses reimbursed by the per diem.

Still confuses me. Per Diem indicates that an employer can reimburse an employee under an accountable plan if the expense amount does not exceed established rates. And that an employee is considered to have accounted to his employer if the expense does not exceed established rates.
Yet under accountable plans it is indicated that an employee must adequately account to the employer for the expenses.

For some reason I have a hard time separating the two.

[Gretel]

Still confuses me. Per Diem indicates that an employer can reimburse an employee under an accountable plan if the expense amount does not exceed established rates. And that an employee is considered to have accounted to his employer if the expense does not exceed established rates.
Yet under accountable plans it is indicated that an employee must adequately account to the employer for the expenses.

For some reason I have a hard time separating the two.

Well, it actually says that the employee still needs to account for time, place, etc. What I am wondering about is in how much detail we have to go, like what qualifies as documented to the employer. Does it need to be an official expense report or will a time sheet do, indicating where the employee has been. Are we really required to ask any of these questions? Isn't it the responsibility of the employer?

[rtsietsema]

Non accountable plan

This is probably an example of employer who is unfamiliar with how to treat per diem. Since the employer does not appear to require any accounting from the employee, this is a non accountable plan, and as such the amounts paid are supposed to be included in the W-2. The employee then can report the expenses on Form 2106. How you get the employer to properly report is of course an issue.

[Bees Knees]

Still confuses me. Per Diem indicates that an employer can reimburse an employee under an accountable plan if the expense amount does not exceed established rates. And that an employee is considered to have accounted to his employer if the expense does not exceed established rates.
Yet under accountable plans it is indicated that an employee must adequately account to the employer for the expenses.

TTB page 8-12:

Per diem is the allowance for travel, lodging, meals, and incidental
expenses. An employer can reimburse employees under
an accountable plan based on travel days, miles, or some other
fixed allowance.
• The employee is considered to have accounted to the employer
if the expense amount does not exceed established federal rates.
• Use of a per diem allowance with an accountable plan eliminates
the requirement for an employee to submit receipts to
the employer.
• Employees must still substantiate the time, place, and business
purpose of the trip being reimbursed under the plan.

So in other words, if the per diem does not exceed the federal rate, it IS an accountable plan, as long as the employee can prove he/she went on the business trip. I assume if the employer sent the employee on this business trip, gave him or her per diem for going, then the exmployee actually went. Its not hard to prove whether or not the employee actually went on the business trip on a certain day and returned on another day.

The whole purpose of per diem is to avoid all the substantiation rules that requires the employee to keep receipts.

[Bees Knees]

This is probably an example of employer who is unfamiliar with how to treat per diem.

I disagree. The original poster does not say the per diem exceeded the federal rate. Assuming it was not exceeded, and the employee has some bit of evidence he/she actually went on the trip, then it is an accountable plan.

[Bees Knees]

Yet under accountable plans it is indicated that an employee must adequately account to the employer for the expenses.

To be clear....

If the per diem does not exceed the federal rates, then the employee DOES NOT have to adequately account to the employer for the expense.

That is the whole purpose of the per diem rules...to simplify the requirements so that it can still be treated as an accountable plan without having to keep receipts.

[ddoshan]

OK ... one more thought in this area then. Situation as described but the employee says he wants to take the federal per diem rate of 77 dollars a day (for the particular area) for lodging. A client I had the other day said he should be allowed this rate. I did explain to him that, in my opinion, this was only intended for the employers use, not for an employee to use. So if the employer paid the employee say 75 dollars a day to cover lodging expenses this would apparently be fine, whether or not they spent anything at all. Assuming the rate was at or below the allowable Federal rate.
From the employees point absent any per diem allowance, if they want to claim lodging, they would have to use actual expenses and of course have receipts.

[Gretel]

To be clear....

If the per diem does not exceed the federal rates, then the employee DOES NOT have to adequately account to the employer for the expense.

That is the whole purpose of the per diem rules...to simplify the requirements so that it can still be treated as an accountable plan without having to keep receipts.

Thank you, Bees, for clarifying the employer rules and what they mean. In other words, as long as the reimbursement does not exceed the total rates for lodging and meals we, as tax return preparers, are good? If the employer reimburses even though it was withing the metropolitan area, it is the employer's responsibility not others?

[Bees Knees]

OK ... one more thought in this area then. Situation as described but the employee says he wants to take the federal per diem rate of 77 dollars a day (for the particular area) for lodging. A client I had the other day said he should be allowed this rate. I did explain to him that, in my opinion, this was only intended for the employers use, not for an employee to use. So if the employer paid the employee say 75 dollars a day to cover lodging expenses this would apparently be fine, whether or not they spent anything at all. Assuming the rate was at or below the allowable Federal rate.
From the employees point absent any per diem allowance, if they want to claim lodging, they would have to use actual expenses and of course have receipts.

That is correct. TTB, page 8-12 says:

No standard deduction for lodging. The per diem rates for
lodging are used only to determine the amount of employer
reimbursement that meets the accountable plan rules, not for
calculating deductions.
• Self-employed taxpayers and employees who are not reimbursed
by their employer cannot use the per diem rates for
lodging to determine a deduction for unreimbursed lodging
expenses but must instead use the actual expense method.
• Self-employed taxpayers and employees can use the per diem
rates for meals to determine a deduction for unreimbursed
meal expenses.

So in other words, if none of the expenses are reimbursed by an employer, the employee (or self-employed individual) must use actual expenses for lodging, but CAN use the per diem rate for meals, regardless of the amount actually spent on meals.

[Bees Knees]

If the employer reimburses even though it was withing the metropolitan area, it is the employer's responsibility not others?

No, the per diem rules only eliminate the need to keep receipts of actual expenses. The employee must still prove the time, place, and business purpose of the trip being reimbursed.

Thus, if the employee cannot prove the trip was outside the metro area (the place), then the per diem would be taxable.

A good example of this is firefighters, who often assumed their meals are deductible even though they do not travel out of town. Their meals are not deductible, unless the employer requires the firefighter to make payments into a common meal fund. If the payments are voluntary, no deduction is allowed (see citation in TTB, page 8-10).

There is a new exception to the out of town rule. TTB page 8-10 has a new rule for local lodging expenses being deductible (or excluded if reimbursed by per diem).

[Gretel]

No, the per diem rules only eliminate the need to keep receipts of actual expenses. The employee must still prove the time, place, and business purpose of the trip being reimbursed.

Thus, if the employee cannot prove the trip was outside the metro area (the place), then the per diem would be taxable.

A good example of this is firefighters, who often assumed their meals are deductible even though they do not travel out of town. Their meals are not deductible, unless the employer requires the firefighter to make payments into a common meal fund. If the payments are voluntary, no deduction is allowed (see citation in TTB, page 8-10).

There is a new exception to the out of town rule. TTB page 8-10 has a new rule for local lodging expenses being deductible (or excluded if reimbursed by per diem).

I do understand this, however, is it our due diligence that would require us to dig deeper, or is it solely the employer's responsibility and we can rely on his determination. Of course it would be different if client came in and said: I got all this per diem reimbursement but I never went out of town. But if it does not look into our face how far do we have to go?

Any opinion? How do you all deal with this?

[Bees Knees]

Often we do not even know if the employee received per diem, if the employee does not tell us and the W-2 does not report it. If the employee does in fact tell me he/she received per diem, then I would ask more questions, like if it was or was not included in the W-2, and whether the per diem was for out of town travel. At first I am asking these questions to make sure I’m not missing a possible tax deduction. For example, often they might receive per diem for meals below the federal rate, in which case we can take an additional deduction on the 2106 for the difference.

But if the answers don’t sound like the per diem would be excluded under an accountable plan, I would ask more questions. If it turns out the per diem is in fact taxable and not included on the W-2, then I believe it IS our responsibility to report it as taxable income on the income tax return. Just because the employer treated it wrong doesn't relieve the taxpayer from paying tax on the benefit.

[Gretel]

Thanks, Bees. This is how I have dealt with these kind of scenarios but never liked reporting as income, neither did my clients. I always ask for the last paystubs for certain taxpayers and/or ask for a copy of the employee handbook or contract. I don't like to rely on the TP word that they did not receive any reimbursement or per diem. Most of the time the TP doesn't have anything in writing and if the employer goes under and TP is audited they do not have any proof that they indeed did not get any reimbursements. I might be going over board.

To answer my own question, I guess I have to dig as deep as I need to to feel comfortable with the situation.