Per diem: when it's tax-free and when it becomes wages

If you work rotations or on a job site far from home, per diem is a noticeable part of your pay. And it isn't always treated the same way.

When per diem is not taxed

All three conditions at once:

• the trip is for work and you stay overnight away from home
• your employer has an accountable plan: you report the days and the location
• the amount doesn't exceed the federal rate for that area

Then per diem doesn't appear on your W-2 and isn't taxed.

When it turns into wages

• There is no plan: it's paid without any reporting
• The payment is above the federal rate: the excess is income
• You have no tax home: if you move from site to site with no home for tax purposes, the whole amount is taxable

If you're on a W-2

If your employer doesn't reimburse you, you can't deduct it yourself. The deduction for unreimbursed employee expenses was suspended in 2018 and the suspension is now permanent. Reimbursement from your employer is the only way.

If you're on a 1099

It's the opposite: workers subject to federal hours-of-service rules use a special meal rate with an 80% limit instead of the usual 50%.

Not sure your per diem is set up correctly? Send me last year's return and I'll review it for free.