Contractor Per-diem Taxability

[Osrid]

s About Taxes)/Contractor Per-Diem Taxability Advertisement Expert: Helen P. O`Planick, EA - 1/19/2009 Background:

I have a permanent residence in a southwest state. I am working for an east coast contracting firm on an assignment with a company in my home state but in a town(assignment town) greater than 50 mile from my perm. residence.

I incur and meal additional lodging expenses while working at my assignment & have chosen to exercise my per-diem option.

I can inquire about my contract continuation status as the last day of my contract approaches - which is soon. I realize that I cannot continue to obtain tax-free per-diem beyond 1 year at this assignment.  

Scenarios/s:

Scenario 1)  Let say that I choose to continue working at the assignment company beyond the 1 year,  a)  Does my past(first 12 months) per-diem remain non-taxable & if not what change or break can I make to ensure that it remains non-taxable  b)  What temporary change can I make(eg.  terminating my contract, and leaving my assignment company for a period of time, incorporate myself) to again obtain tax-free per-diem(in the future).

Scenario 2)  I leave the assignment & work at a new assignment company in the same assignment town.  

a)  Does this ensure that my first, previously mentioned, per-diem remains tax free?

b)  Can I begin receiving tax-free per-diem for work at the new company?

Regards, Mark

[Prescot]

The second the company says Mark, you are staying either perm or over a year is the second your perdiem is taxable.  Scenario one smells pretty bad to me and I know it will smell bad with the IRS as this is a target area right now.  If you are going to use it, it should be at least a year btwn.

If scerario 2 is another company - totally unrelated to the your company now or the job site itself, that one will work.

Helen, EA in PA