Tax Free Per DiemHousing Reimbursements by yu2132


									        Tax Free Per Diem/Housing Reimbursements

Question: What is Tax Free Reimbursement?

Answer: An employer whose employees travel in the course of their
work may reimburse their employees tax free for expenses incurred while
the employee is traveling away from home on temporary assignment.

Question: How much can a company reimburse for Per Diem and

Answer: The IRS sets Maximum daily reimbursement rates that can be
paid to an employee without exchange of receipts for lodging and meals
during days that the employee is away from home on behalf of the
employer. These rates vary by location depending on the local cost of

Question: How can an employee qualify for Tax Free

Answer: Traveling nurses may qualify for tax free per diem
reimbursement and/or housing allowances where they have a valid
permanent taxable residence which is not in the same area (reasonable
driving distance) from their assignment and they are away from home on
a temporary assignment which is not considered indefinite by the tax

Question: Can a company legally lower an employee’s pay rate in
order to offer tax free reimbursements to employees?

Answer: Tax free per diems and housing allowances must be for
reimbursement for costs associated with being away from home for the
employee. They MUST be for over and above the regular wages associated
with the position for which the employee is being compensated. This
means that a company cannot legally lower an employee’s pay rate in
order to offer them tax free reimbursements. If an employee can not
substantiate (with evidence) the need for reimbursement the IRS would
consider the additional compensation received as taxable to the

Question: What may tax authorities look for when reviewing
compensation for proper tax treatment?

Answer: If taxable wages paid to an employee are clearly below the
national and local average (for example, $10/hour for a Registered Nurse
would clearly fall well below the national average) then this could be
considered wage re-characterization (designed to avoid payroll taxes) and
the employee as well as the company could be prosecuted for tax
Question: Besides putting me at risk for an audit, what other
pitfalls are there in being compensated by an aggressive wage re-
characterization scheme?

Answer: If a company lowers an employee’s taxable wages for the
purpose of paying the employee less taxable and more non taxable
reimbursement then any overtime worked would be paid at the much
lower pay rate thus the employee would earn less. Also, your legally
reported wages would be extremely low, meaning you will qualify for less
Social Security at retirement and may have difficulty obtaining loans or
mortgages. Finally, Disability payments are based upon taxable wages
only, so those payments would be negatively impacted as well.

Question: Why may companies offer illegal plans?

Answer: Companies that offer employees illegal wage re-characterization
programs are saving by not having to pay the additional cost of FICA
associated with taxable wages and also by paying overtime wages to the
employee at a much lower rate and billing the client at a much higher

Question: Is there a legal way I can take advantage of these types of
deductions for per diem?

Answer: Yes, qualifying travel and lodging related expenses may be
deductible on your federal or state tax return; however, you should
consult your tax preparer.

This sheet is not meant to be tax advice you should always consult a
tax professional for questions regarding tax issues.

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