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9 Replies Latest reply: Feb 20, 2008 8:09 AM by roma1625 RSS

Question about paying an employee per diem

roma1625 Newbie
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I have an employee who I have been paying per diem for almost a year. He has been working in a city that is about 120 miles west of his home. When the year is up, can we move his work location to another city (130 miles east of his home) and continue to pay him per diem? How long would he have to work in the "east" city before we could move him back to the "west" city and still pay the per diem? Is there a rule or guideline that covers this?
  • Re: Question about paying an employee per diem
    LUCKIEST Master
    Currently Being Moderated
    1625 Question about paying an employee per diem.
    Do you have an Accountant??
    The I R S does not like the words "employee and per diem"
    An employee is on payroll Per diem is NOT an employee.
    You could be subject to interest and penalties from the govt and the state.
    LUCKIEST
  • Re: Question about paying an employee per diem
    roma1625 Newbie
    Currently Being Moderated
    I am paying this person per diem to help him offset his expenses for traveling to another city to work (mileage, etc.). This is perfectly legal.

    Luckiest, do you attempt to answer every question on all of the boards? If the answer to every question is to consult your accountant or attorney, there would be no need for this board, would there?
  • Re: Question about paying an employee per diem
    Lighthouse24 Master
    Currently Being Moderated

    I don't quite understand the response from Luckiest. The only problem the IRS has with per diem (as far as I know) is when an employer "hides" regular employee compensation by calling it per diem in order to save taxes. I have received per diem as an employee, and I pay it as an employer. There are some rules regarding transitions when the rates change, but I am not aware of any kind of IRS guideline that says an employee has to remain in one location versus another for any specified amount of time. Is there something you heard or read that caused you to ask the question?
    • Re: Question about paying an employee per diem
      roma1625 Newbie
      Currently Being Moderated
      The rules say you can only pay per diem for a year. The year is almost up.

      He lives approximately mid-way between Houston and Austin (both of which are over 100 miles from his home). He has been working in Houston for almost a year, but now he will be working in Austin. Can we pay him per diem for working in Austin, even though he has been receiving per diem for working in Houston for a year?
      • Re: Question about paying an employee per diem
        dublincpa Apprentice
        Currently Being Moderated
        You are probably fine. I would guess that the two cities are far enough apart and far enough from the EEs home. The one year rule is used to discourage disguised long distance commuting as business travel.

        If I live in Tacoma, WA and permanently work in Dallas, TX like an American Airlines pilot or an IT person who spend M-F in work town and weekends in home town, I can't write off or be reimbursed tax free for my commuting and living expenses while in work town.

        As far as the time required in city two before going back to city one, it is "facts and circumstances". I would say equal amounts of time might be safe, but there is no true safe harbor.
      • Re: Question about paying an employee per diem
        Lighthouse24 Master
        Currently Being Moderated
        Okay, I see what you're asking. The question would seem to be whether he's somewhere temporarily or indefinitely. Anything over a year is considered indefinite, so you're fine moving him from Houston to Austin before a year is up, and fine moving him from Austin to somewhere else before another year is up --- but can that somewhere else be back to Houston again? It could come down to whether or not you can convince the IRS (if asked) that Houston is a temporary work place.

        I have done what you're describing as both an employee and an employer without problems, but the assignments were always projects being managed for a client firm -- so the work involved truly was "temporary" by definition (it had a finite end), and we really didn't know one year where people might be the next year or the year after -- because the work didn't exist yet. In your case, a problem could arise if you already know there's work in Houston next year and that he is going to do it. It makes it sound like that's his "tax home" -- different from his family home, yet permanent for work purposes and ineligible for deductions as dublincpa explained in the example previously.
    • Re: Question about paying an employee per diem
      LUCKIEST Master
      Currently Being Moderated
      Thank you, I stand corrected.

      Many U.S. companies and organizations use the per diem rate guide published by the General Services Administration, which provides rates for a number of cities in the United States

       

      When an employer reports an employee's earning at the end of the year on a W-2, per-diem is listed separate from taxable income, under 'Misc. non-taxable'.

       

      Per diem is designed to cover the additional expenses you have of
      living away from home - basically having two residences. The IRS sets
      the maximum amount of per diem each year based on the location - for
      instance, NYC has a higher rate than Peoria, Il. Per diem is supposed
      to be paid on a daily basis, seven days a week, while you're at the
      remote location. It is not supposed to be tied to your salary, number
      of hours/days worked, etc. - just a flat daily rate. However, many
      brokers will try to save money by saying it's only for those days you
      work, or you get the full amount only if you work a full day, etc.

       

      There are no ramifications if you later take a full time position
      with the company. In fact, you can collect per diem even if you are a
      full time employee, but are working away from home. You do not have to
      be a contractor.

       

      They can continue to pay the per diem as long as you're working for
      them and maintaining two residences. However, if you do something like
      rent your house out while you're gone, you're no longer maintaining two
      residences, and no longer eligible for per diem.

       

      Any tour of duty adding up to over 500 miles counts as a per diem.
      You can claim up to the per diem limit without receipts. Anything over
      this has to have records i.e. receipts. Note also that as long as you
      keep a record that $xx.xx was spent on xx-xx-20xx, then you do NOT need
      a receipt for any expense less than $75. A logbook and a pocket
      calendar is a perfectly acceptable method of tracking these
      "undocumented" (with a receipt, at least) expenses.

       

      LUCKIEST

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