Ask Me Help Desk - Per diem confusion

Hello all,
Any information any one has is greatly appreciated. We are soooo confused.:confused:

A little linformation:

My husband got an offer to go temp to perm in tyler, tx. We currently own a house and live in houston, tx. We will be putting the house on the market so that when he goes direct in 6 months we can move there permanately. I need to explain the offer so that someone could tell us if it sounds right since we know nothing about per deim. The offer is this: the engineering company offered $43/hr and $64.50 for anything over 40 hrs. the contract company then explained all of our insurance costs and so on and so forth. The next part is where we got lost. The recruiter said that they would only be taxing $15.17 for the first 40 hrs. The taxes that we don't pay on the $27.83 would go to living expenses until we are able to move there permanantly or 12 months what ever comes first. They explained that as per diem. We understand per diem to be a daily rate paid over your wages for living expenses. In this case tyler is $99/day. So our question is that how are they able to do that? Wouldn't we eventually have to pay taxes on the $27.83? And wouldn't the IRS then look at the $27.83 as the actual per diem, which is way too much for the 99 per day! Then my husbands salary would only be $15/hr. that would be one hellova pay cut! If they claim the whole $43/hr on the w2 and just show the amount of taxes we paid then we would have underpaid taxes and owe them anyway? If they give us a 1099 then it would be even worse even if we keep all the reciepts. We are so confused!! My husband really wants this job but we don't want to sign anything if we can get the raw end of the deal! If anyone knows anything about contract employment or per diem and taxes Please let us know if you have heard of this or if this doesn't sound correct.

I hope I explained this properly!

Quote:

Originally Posted by gsewilson

hello all,
any information any one has is greatly appreciated. we are soooo confused.:confused:

a little linformation:

my husband got an offer to go temp to perm in tyler, tx. we currently own a house and live in houston, tx. we will be puting the house on the market so that when he goes direct in 6 months we can move there permanately. i need to explain the offer so that someone could tell us if it sounds right since we know nothing about per deim. the offer is this: the engineering company offered $43/hr and $64.50 for anything over 40 hrs. the contract company then explained all of our insurance costs and so on and so forth. the next part is where we got lost. the recruiter said that they would only be taxing $15.17 for the first 40 hrs. The taxes that we dont pay on the $27.83 would go to living expenses until we are able to move there permanantly or 12 months what ever comes first. they explained that as per diem. we understand per diem to be a daily rate paid over your wages for living expenses. in this case tyler is $99/day. so our question is that how are they able to do that? wouldnt we eventually have to pay taxes on the $27.83? and wouldnt the irs then look at the $27.83 as the actual per diem, which is way to much for the 99 per day!! Then my husbands salary would only be $15/hr. that would be one hellova pay cut!! if they claim the whole $43/hr on the w2 and just show the amount of taxes we payed then we would have underpaid taxes and owe them anyway? if they give us a 1099 then it would be even worse even if we keep all the reciepts. we are so confused!!! my husband really wants this job but we dont want to sign anything if we can get the raw end of the deal!! If anyone knows anything about contract employment or per diem and taxes Please let us know if you have heard of this or if this doesnt sound correct.

i hope i explained this properly!!

I am not exactly sure what the company is attempting to do. By indicating that there is no tax on $27.83, indicates that this your daily expense. You never receive this amount for it would equal an offsetting expense. In essence you will be working hourly for substantially less than you think ($15 per hour). If you find your own place the per diem will in all probabllty will end and hourly rate will remain at $15. What the IRS allows for per diem allowance has nothing to do with what this company is offering you.Generally an hourly wage earner is not an employee and the company will give you a 1099 for the $15 per hour earned. This will cause you to be liable for self-employment tax, federal, state and local taxes if applicable.

As stated, per diem offsets daily living expenses in a temporary work arrangement, which the IRS specifies ends after one year.

You will have to pay income taxes on this per diem payment, as it is being paid under a non-accountable plan. No self-employment taxes should be due because it is considered exepnse reimbursement. You will be able to deduct your daily expenses using Form 2106 as an itemized deduction subject to a 2% AGI floor. Receipts for the living expenses are not needed if you claim the federal per diem rate as specified on IRS Pub 1542.