We have employee who is on L-1 visa and his stayed at U.S is going to be more then 6 months. When an Employee is visiting our US office on L-1 while staying on Foreign Payroll, we usually give them a monthly "Per Diem" for their expenses here while in US (food, lodging, transportation, etc.), which in our accounting records shows as "Travel Expense" this is not Taxed to the employee (if they are to receive 3500/month, then they get exactly $3500/month). However, I do understand that when an employee is here at U.S for more then six months, by law they are require to pay taxes. If this is true, please advice what are the taxes that they are responsible for and how to have it file?

Thanks,
Fatimah

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Fatimah:

They are liable for the full range of taxes:

Social Security at 6.2%
Meidcare at 1.45%
Federal income taxes
State income taxes

Also, the per diem is ALSO taxable income in my opinion, because you are reimbursing them under a non-accountable plan. In other words, they do NOT have to submit a monthly expense report to get reimbursed. They get the same amount of money each month regardless of their actual expenses. That makes the per diem taxable income.

The employee can and should deduct their daly living expenses using Form 2106 and the Schedule A of either the Form 1040NR or 1040, whichever they qualify to file. This will, for the most part, offset the added tax load for taxing the per diem. BTW, the per diem is only taxed for INCOME taxes; it is NOT taxed for Social Security or Medicare taxes.

The ability to deduct their daily living expenses is allowed for up to ONE YEAR. Once they exceed the one year time in country, then they CANNOT deduct their daily living expenses.

Now, if they ARE submitting an expense report, then you are reimbursing them under an ACCOUNTABLE plan. In that case, the reimbursements are NOT taxable.