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phoenix4574 · Sep 24, 2010, 07:01 AM

I have been offered an independent contractor position for 2 months in Florida. I live in NH. The offered rate is $9/hr for "taxable income" purposes, as they put it, and $21/hr per diem which the contracting company has indicated is NOT taxable for a total of $30/hr. My research so far seem to be inconsistent on the truth on if per diem is taxable.

Is per diem, paid in this manner, reportable as taxable income? On what IRS form?

As a follow-up questions, under these circumstances, what is a legitimate deductions while I am on assignment or where can I find information on this?

Links to source information would be appreciated.

Thank You!

ebaines · Sep 24, 2010, 07:42 AM

Per diem is NOT taxable, as long as the intent is that the assignment is of short duration - meaning less than one year.
If the assignmemt was to extend beyond a year then it could become taxable income. The max per diem rate is dependent on precisely where the assignment is, and in some cases on the time of year - see table 4 of this document for max allowed per diem rates to amlke sure that the rate of $21/hr x 8 hrs = $168/day is in line with the IRS rules: Publication 1542 (04/2010), Per Diem Rates

You will need to file expense reports with your employer in order to keep your per diem as non-taxable. See this site for FAQs: http://www.irs.gov/pub/irs-regs/perdiemfaq%26a.prn.pdf
If you incur legitimate business expenses over and above, then you can deduct those expenses as long as you have receipts to justify them. So keep receipts for big ticket expenses like travel between NH and FL, or any other significant expenses that you may be able to deduct. See pub 463 for info on deducting business expenses: http://www.irs.gov/publications/p463/

phoenix4574 · Sep 24, 2010, 07:50 AM

I just got off the phone with the company and now it seems that I AM NOT and independent contractor but an employee of the company that is assigning me to FL. They will W2 me at the end of the year for wages at $9/hr.

How does this change taxable per diem and deductions?

ebaines · Sep 24, 2010, 08:05 AM

Please clarify - are they paying you a per diem or not? If not, then will you be submitting expense reports to the company for reimbursement? Or are all your expenses supposed to be covered by you without reimbursement by the company?

phoenix4574 · Sep 24, 2010, 10:04 AM

Sorry... I'll try to explain...

I pay all my expenses. They pay me $9/hr (the rate that will be taxed for W4 purposes) and on top of that they will pay me $21/hr per diem. I do not submit my expenses to the company for payment.

Is this per diem taxable?
Can I claim my expenses (travel, hotel, car rental, food, etc... )?

ebaines · Sep 24, 2010, 10:43 AM

The per diem is NOT taxable, assuming that the rate is less than or equal to the max allowed per the document I referenced earlier. You should ask how they came up with $21/hour - which I suspect is actually intended to be $168/day - is that the max allowed for the area you will be working in?

You may not claim your expenses unless they actually exceed the per diem amount the company pays you. In that case you would have to itemize and document the excess of your expenses over and above the per diem you receive. You would use form 2106 to itemize your total expense and subtract your reimbursements, and then deduct the remainder on Schedule A (subject to the 2% floor of adjusted gross income for itemized deductions). The types of expenses you can include are described in Pub 463, which I've already given you a link to, but basically it's anything that is in support of the business - including meals, hotel, travel costs.