Tax-free Per Diem and Auto Allowance

Per Diem and Auto Allowance

• Per Diem Greatly Simplifies Out-of-town Expenses
  
  
  • You may qualify for per diem (living allowance) and auto allowance while on temporary, out-of-town, contract assignments.
    
    
  • Per diem and auto allowance are paid out of your division's revenues.
    
    
  • Per diem and auto allowance are undocumented, reimbursed expenses and, therefore, these payments are exempt from taxes.
    
    
  • The tax-free per diem allowance is only available to employees, and is not available to self-employed independent contractors, who must itemize every expense.
    
    
  • Advantage to you: As an employee of P.A.C.E., you qualify for simplified expense reporting and enhanced net earnings while on out-of-town work assignments.

• A Brief Explanation of Per Diem
  
  
  • The following discussion is adapted from the P.A.C.E. Per Diem Application, which P.A.C.E. Division Managers complete as documentation for their claims for per diem while on temporary, out-of-town, contract assignments.
    
    
  • Per diem is Latin, and means "by the day" or "per day". The idea of per diem is to reimburse you with tax-exempt dollars for normal living expenses up to a maximum rate set by the Federal Government.
    
    
  • When you are reimbursed by per diem payment you do not have to show receipts for lodging, meals, and incidental expenses if they are under the posted per diem limits for the locality in which you are working. Most contractors simply claim the legal maximum.
    
    
  • There are no restrictions on your living arrangements or whether you actually pay for your lodging, meals, and incidental expenses. Per diem greatly simplifies the computing and reimbursement of travel expenses, which is why per diem is the preferred form of reimbursement for employees of the Federal Government.
    
    
  • Per diem policy is set by the Federal Government. You are eligible for tax-exempt per diem payments if you are working away from your tax home on a temporary assignment that is contractually limited to less than one year. Per diem is always computed by the day; never by the hour.
    
    
  • If your work at the remote, temporary work site continues for longer than one year, or in any other way violates IRS conditions for tax-exempt status of per diem, all per diem payments associated with your work at the remote, temporary work site become taxable as ordinary income.
    
    
  • Advantage to you: Per diem greatly simplifies the handling of out-of-town living expenses, and is one more way that P.A.C.E. Solo W-2™ gives independent professionals great tax advantages and higher net earnings.

 

• P.A.C.E. Requirements for Per Diem

• To qualify for per diem payments from P.A.C.E. you must satisfy all of the following conditions.
  
  
• Your work-related business activity is at least fifty miles from your tax home, and requires an overnight stay. The IRS does not state a specific number of miles, rather leaving the distance to the discretion of the employer. Therefore, P.A.C.E. specifies a distance of 50 miles as a reasonable distance to justify payment of per diem.
  
  
• You maintain temporary lodging (apartment, hotel, motor home, etc.) within reasonable commuting distance of your client’s physical work site.
  
  
• Your work at the remote work site is temporary, and has a specified contractual duration of less than one year.
  
  
• You have no intention, either explicit or implied, of working continuously at the same remote work site for the same client for a period greater than one year, including breaks in service of less than 30 days, or of establishing a permanent residence in the vicinity of the remote work site, or of becoming an employee of the client at the remote work site.
  
  
• You have completed, signed and returned to P.A.C.E. the Per Diem Application including all required supporting documentation.
  
  
• Your Division Administrator will walk you through the process of qualifying for per diem.
  
  
• Advantage to you: Your Division Administrator makes sure that you satisfy the IRS requirements for tax-free per diem and that you receive the maximum possible tax advantage.

 

• Auto Allowance
  
  
  • An auto allowance reimburses you for the anticipated monthly cost of leasing and maintaining an automobile while on extended out-of-town assignments. The intent is to simplify expense reporting and record keeping.
    
    
  • In general, if you qualify for per diem payments you may also qualify for an auto allowance. Auto Allowances are paid out of your division's revenues, and are exempt from taxes.
    
    
  • Your Division Administrator will help you download and complete the Auto Allowance Worksheet and walk you through the process of calculating your auto allowance.
    
    
  • Advantage to you: Per diem greatly simplifies the handling of out-of-town auto expenses, and is one more way that P.A.C.E. Solo W-2™ gives independent professionals great tax advantages and higher net earnings.

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