Taxing on perdiem?

[G3G4]

Has anyone experienced this with any company.
We were told by the accountants with our company that because we are considered to work in the "transportation" industry and we make more money than standard IRS perdiem rate that we have to pay tax on what ever is paid over the standard rate. Example we get 70 domestic and 105 international, the standard IRS perdiem is 50 domestic and like 65 international so we have to pay tax on the difference between the two. Is this correct????

Anyone have any insite on this???

 

[DUATS]

Your employer is exactly correct. Anything above the IRS rate (which varies by city, so some research might be necessary) is taxable. If they use the minimum national rate of $46, you can take an unreimbursed business expense deduction for days you were in a city with a higher per diem (ex: San Diego is $71. New York is the same.)

Same is true of car mileage. In a previous life while doing taxes, I had a client who was given $1 a mile by the company. (They wanted to encourage her to go visit clients. It worked.) She was not happy that she had to pay tax on everything over the IRS rate.

 

[rettofly]

Look on the bright side.

You get to keep what's left of the excess after taxes.

 

[gret]

In 2011, Revenue Proc. 2011-47 was issued which provides detailed guidance on the matter and they issued a bulletin shown here-

http://www.irs.gov/irb/2011-42_IRB/ar12.html

Note the point is that the employer has to report the amounts and withhold tax on the excess. This does not necessarily mean you owe the tax. If your actual expenses exceed the standard allowance, you deduct the excess on your tax return as an itemized deduction. The itemized deductions are subject to limitations and whether you actually get the deduction will depend on your individual facts and circumstances

On the surface, it sounds like a royal rip off. However, if you think about it makes sense. The IRS allows the employer and employee options for travel expenses. One of them is to reimburse actual expenses based on receipts. If this method is employed, nothing is included as income to the employee. An alternative is to pay per diem rates for expenses based on what the IRS has determined to be a reasonable rate. In this case, no receipts are required and nothing has to be included as income.

If an employer decided to pay per diem rates in excess of the guidelines, all bets are off in that the IRS considers any excess as income. This makes sense as the employer could otherwise disguise additional income to the employee as "per diem" expense reimbursements and nobody would pay tax. Using an extreme example, without the IRS rules, an employer could pay per diem rates of $1,000 per day and all concerned would say it is an expense reimbursement and nobody would pay tax on the excess.

As mentioned, the problem goes away if the employer reimburse actual. This method however ruins everything for those that enjoy Wendy’s and are reimbursed for a Chili’s dinner under the per diem method (using the IRS guidelines per diem rates). It absolutely destroys the Wendy’s lovers who are reimbursed for a Morton’s steak under an excess per diem plan.

 

[G3G4]

Thanks for the info. I was just curious if other companies did that too or they hid their perdiem somewhere else in their accounting

 

[flyzimex]

What if you are not on per diem but on a company cc instead? How does the IRS view that?

 

[t-bone]

What if you are not on per diem but on a company cc instead? How does the IRS view that?

The IRS is not concerned with it on your end because it is not considered income. They do look at it though on the company side, as the company is writing those expenses off, and that's why we have to turn receipts in for expenses over $25.

We miss out on several job-related deductions, but on the other hand we don't have to pay for several job-related expenses. To me, the latter seems better.

 

[gret]

It is the same as turning in receipts and their isn't a tax impact. The company just deducts the out of pocket expenses under normal limitations, if any.

Now...if you are charging personal expenses and the company is paying for it, you have a lot problems..it is taxable to you, you'll lose you job, and if material, you will probably be charged with embezzlement.

 

[DUATS]

When you look at those job related expenses, remember they are not really avaluable tax deduction to most of us. First, you have to itemize deductions in order to take anything. That usually only makes sense if you own a home with a mortgage. Second, you must deduct 2% of your adjusted gross income from the unreimbursed expenses. If you are married, that includes the spouses' income. So if you make $100K and your wife makes $50K, the first $3,000 of unreimbursed business expenses are non deductible.

Remember, the IRS and the FAA have the same motto: "We're not happy, until you're not happy."

 

[BentOver]

Has anyone experienced this with any company.
We were told by the accountants with our company that because we are considered to work in the "transportation" industry and we make more money than standard IRS perdiem rate that we have to pay tax on what ever is paid over the standard rate. Example we get 70 domestic and 105 international, the standard IRS perdiem is 50 domestic and like 65 international so we have to pay tax on the difference between the two. Is this correct????

Anyone have any insite on this???

First thing ya gotta do is seek the advice of a tax professional and NOT take the advice from a pilot, especially on FI.com..... I swear if someone had a surgery related question and asked both a doctor and a pilot at the same time, the pilot would think he was right...

Now a pilot who is a tax professional is a different story