I am a contractor and the company I work through pays me per diem in Orange County, CA of $174 per day, 7 days a week as long as I am in market. This is non taxable. Does the contracting company get the money they pay as per diem back at the end of the year? Are they taxed on this money they pay to me as per diem? I am curious because when negotiating a hourly wage they want to include per diem in the cost they need to include in calculating their profit margin on an hourly bases.

$90.00 hourly bill rate to customer
-$21.75 per hour for per diem (to me this should not be considered since they get it back)
-$65.00 per hour my wage
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$3.25 profit per hour

They say they need 15% overhead and minimal 5% profit margin per hour.

If they pay per diem, that IS a tax deduction for the company.

But a deduction is NOT a credit; they do NOT get is all back.