I think I'm going to take a 13 week travel assignment. I signed up with an agency last year, but never did any shifts for them. They recently sent me an email informing me of some travel assignments available. One is for a hospital I used to work at that's about 1 hour from my home.
They give you a $750 a week housing allowence that is tax free! Of course I'd be driving each way! The hourly pay is actually less than I make now, but I'll be making more weekly, actually, with the tax free housing stipend. She told me you use it however you want.
They obviously have figured out how beat the tax man, a very attractive bonus! This contract is 13 weeks for 12 hour dayshift on a Med/Tele unit. I'll end up with $9000 of tax free money, in addition to making $25 per hour! I like it!
According to the IRS a relocation bonus, or a housing bonus are non taxable only to the extent you use them for relocation or for housing.
So if you receive a $10k relocation bonus but you only have qualifying receipts for $8K then you pay tax on the difference $2K.
If you receive a housing allowance, and you can not produce receipts showing that you used it for housing then you pay tax on what ever you can not provide qualifying receipts for.
Be very very careful in taking tax advice from non qualified persons. People who are trying to sell you something such as a job recruiter, a investment sales person, or business services ("you can write this off as a business expense, because it is for your business") have their own agenda.
They are not outright lying. In certain circumstance they are absolutely correct. However it may not apply in your case. Sometimes they are simply not telling the whole truth because they are not fully informed of the tax laws. In most cases the housing can be and is tax free because people use it for housing.
The employer will not withhold tax on this because it is assumed you will write it off in the end. However, if you can not legally write it off due to your circumstance then you become responsible for paying the tax.
There is a loophole so to speak but it is not really a loophole. For example if you purchase an RV as a second home (for business) and use it while on assignment you can write everything connected to the RV off as housing expense.
You should contact a CPA who specializes in taxes. They are the best qualified to advice you.
Hello again, just an update. I checked back with the agency, and more importantly verified this with my tax preparer, who is a CPA. She checked into and found that this loophole does exist, that it is called a Per Diem Allowance, and there are set rates per geographic area. My CPA states that this is, indeed, a very advantageous loophole, and that they cannot come back and collect FICA. She states that you do not need to provide documentation on how your spend this money.
The agency person informed me that the distance requirement is at least 40 miles from the worksite, and you are required to sign in the contract that your primary residence will remain your home.
Per Diem: These are maximum rates that can be given to an employee without an exchange of receipts for lodging and meals during days that an employee is away from home on the business of the employer. The rates are set by the government for every area of the world and are broken down by counties in the US. The rates can be found in IRS Publication 1542 and other government publications. These rates are designed to be a national standard for a particular area and reduce the reporting burden by employee and employer. As long as the allowance does not exceed the per diem rate maximum and the company has a reasonable belief that the employee would deduct these expenses without reimbursements, no receipts are required to be exchanged
2) The IRS requires that excess reimbursements be returned or reported as income. If the traveler is handling their own housing, and the company provides a tax free housing allowance, the company assumes that the housing is required by the traveler 7 days a week and provides an allowance based on 7 days. . If the traveler stays in a hotel, returning home the other 4 days, 4/7ths of the weekly allowance must be returned to the company OR reported as additional income on the tax return. By contrast, if the traveler secures temporary lodging that is available to them 24/7 during the assignment, the housing reimbursement is allowed in full, but if the traveler returns home at any time during the contract, they cannot receive a meal per diem for those days and the excess must be returned or treated as additional taxable wages. In my practice, I rarely see a tax advantage program that specifies this requirement in the contract and since a policy such as this is required, many of the tax advantage programs will fail the test. (see LTR-RUL No. 9052002 and Revenue Ruling 2006-56)
exactly right, but the excess referred to is the excess days of reimbursement. The allowable limit per day is set in IRS publication 1542. If the reimbursement is within that limit - the standard is $39/day for meals and $99/day lodging there is no receipt required. You do not have to document that expense.
Just that for the day reimbursed you were within the rules for reimbursement and within the allowable limit.
The excess refers to excess # of days reimbursed or money per day in excess of the allowance.
Hello again, just an update. I checked back with the agency, and more importantly verified this with my tax preparer, who is a CPA. She checked into and found that this loophole does exist, that it is called a Per Diem Allowance, and there are set rates per geographic area. My CPA states that this is, indeed, a very advantageous loophole, and that they cannot come back and collect FICA. She states that you do not need to provide documentation on how your spend this money.
The agency person informed me that the distance requirement is at least 40 miles from the worksite, and you are required to sign in the contract that your primary residence will remain your home.
That's interesting...so according to your post I wasn't as off as I thought. The travel agency my wife and I work(ed) for called the "Per Diem Allowance" referred to it as a "tax free housing, meals and incidentals stipend" which the incidentals part is pretty broad. As for not needing receipts, this would be quite surprising that the IRS would not want to see how you spend your tax free money during an audit. It's nice if this is indeed true, but rather surprising, nonetheless.
According to my CPA this is authentic. Turns out there ARE loopholes for little people like us, not just multi-billionaires.
The one thing you forgot to mention is that these are loopholes designed for those that are incurring duplicate expenses because they are working away from their tax home. If you reside in your tax home and commute to work from there, you cannot claim the per diem and the untaxed housing allowance. You must establish duplicate expenses to be able to avail yourself of the 'loopholes' or you just have a normal job with an extremely long commute.
No, you don't need to provide any documentation at all. The IRS allows a certain amount per day depending on the geographical area.
Per diems and housing allowances are designed for those that must travel away from their residence for work related purposes. Best if you go the the IRS website and read the instructions carefully and in the correct context. Think about it, if this wasn't the case, then ALL employees would be eligible to to obtain tax free per diems and housing allowances! You are right that you don't need documentation; but, the statement is out of context-The IRS allows a certain amount per day, depending on your geographical area, for those that are traveling away from their tax home residence in order to conduct business that they reasonable cannot commute back to the home/residence at
the end of the day.
This is a direct cut and paste from the IRS site:
"A per diem allowance is a fixed amount of daily reimbursement your employer gives you for your lodging, meals, and incidental expenses when you are away from home on business. (The term "incidental expenses" is defined in chapter 1 under Standard Meal Allowance.) A car allowance is an amount your employer gives you for the business use of your car."
"The standard meal allowance. The standard meal allowance (discussed in chapter 1) is the federal rate for meals and incidental expenses (M&IE). The rate for most small localities in the United States is $39 a day from January 1, through December 31, 2007. Most major cities and many other localities qualify for higher rates. The rates for localities within the continental United States are listed in Publication 1542. You can also find this information on the Internet at http://www.gsa.gov.
You receive an allowance only for meals and incidental expenses when your employer does one of the following.
Provides you with lodging (furnishes it in kind).
Reimburses you, based on your receipts, for the actual cost of your lodging.
Pays the hotel, motel, etc., directly for your lodging.
Does not have a reasonable belief that you had (or will have) lodging expenses, such as when you stay with friends or relatives or sleep in the cab of your truck.
Figures the allowance on a basis similar to that used in computing your compensation, such as number of hours worked or miles traveled."
It is hard to believe that a CPA would not know this. It might be wise to check with someone familiar with travel tax law because you could wind up owning the gov some serious $ if you don't have an alternate residence to stay at while on assignment.
Please do not take offense & try to understand that many of us here are trying to help you. When it comes to the IRS, there is never a free ride or an unconditional loophole.
No, you don't need to provide any documentation at all. The IRS allows a certain amount per day depending on the geographical area.
Please listen to what loricatus and others are saying and save yourself a lot of potential trouble down the road if you are audited. Keep in mind that the IRS has ruled in the past that you are still responsible for penalties for tax mistakes even if you were given the wrong information by THEIR agents when calling with questions!
Many tax professionals and CPAs simply don't encounter enough travelers to be familiar with all the regulations and restrictions surrounding this. You really need to speak to a tax professional who specializes in working with traveling professionals.
If you choose to accept this anyway that's your risk, but please don't tell others that this is a legal thing to do!
Agnus
2,719 Posts
According to the IRS a relocation bonus, or a housing bonus are non taxable only to the extent you use them for relocation or for housing.
So if you receive a $10k relocation bonus but you only have qualifying receipts for $8K then you pay tax on the difference $2K.
If you receive a housing allowance, and you can not produce receipts showing that you used it for housing then you pay tax on what ever you can not provide qualifying receipts for.
Be very very careful in taking tax advice from non qualified persons. People who are trying to sell you something such as a job recruiter, a investment sales person, or business services ("you can write this off as a business expense, because it is for your business") have their own agenda.
They are not outright lying. In certain circumstance they are absolutely correct. However it may not apply in your case. Sometimes they are simply not telling the whole truth because they are not fully informed of the tax laws. In most cases the housing can be and is tax free because people use it for housing.
The employer will not withhold tax on this because it is assumed you will write it off in the end. However, if you can not legally write it off due to your circumstance then you become responsible for paying the tax.
There is a loophole so to speak but it is not really a loophole. For example if you purchase an RV as a second home (for business) and use it while on assignment you can write everything connected to the RV off as housing expense.
You should contact a CPA who specializes in taxes. They are the best qualified to advice you.