I am working for a company as an independent contractor. They pay me a flat rate per day and when travel is involved they pay me per diem for meals and expenses (they pay for the hotel room and air travel). It looks like they included the per diem on my 1099 misc in box 7 with everything. I thought that per diem should not be lumped into the income amount as it is tax free to me. Any help would be greatly appreciated.

For 1099-misc you will use schedule C or C-EZ where you will report all your income and expenses. Now it is for you to account for your expenses. Your U.S. Tax Return: Tax Filing by Self Employed Sole Proprietor or Independent Contractor (http://taxipay.blogspot.com/2008/04/tax-filing-by-self-employed-sole.html)

It is perfectly legal for them to put your per diem on the Form 109-MISC as "Non-employment compensation", especially since you are a contractor.

It would be legal even if you were a W-2 employee.

Since they are counting it as taxable income, you are legally allowed to claim your meals and incidental expenses on your Schedule C. You can use your actual costs, or the per diem rates allowed in IRS Pub 1542, whichever is greater.

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