While you may have read my articles on various websites, or my posts on Facebook pages and other forums, from time to time I like to wax eloquent without fitting my thoughts into someone else’s prescripted format. Some of the entries may be long and a few will simply be rants. Whatever the case, you are guaranteed to find some nugget of tax knowledge fitting for your situation with a dash of sarcasm or philosophy.
Since our clients are primarily engaged in multi state assignments, cross border employment or posted abroad, they share a common connection of working on the road, exploring the world or just planting themselves in a foreign land ….. travelers and nomads at heart.
Recently, our office has received a number of calls and messages regarding changes to contracts where the hourly taxable rate has been lowered significantly and the per diem has increased as well.
Is this legal? Do I have risks? Is this wage re-characterization? Should I extend the contract? Will I get audited?
These are all good questions.
First, an agency/employer can change the terms of a contract in this manner but only in a NEW contract, not in the middle of a contract that has not been completed. Revenue Ruling 2012-25 (which is linked in our References and Citations section of this blog) allows a PROSPECTIVE change to an employees taxable / per diem, but not a mid contract change. If it follows the Revenue Ruling them it is not wage re-characterization
Second, there are some risks that are not borne equally by all travelers. Loans, disability, workers compensation, and unemployment all rely on the taxable rate. Per diems are reimbursements / expense offsets so they are not income and do not count for these items. Social Security is based on the 35 highest years or earnings so if the earnings history needs some years of higher earnings, this arrangement might not work well.
Third, Can I get audited? Anyone can get audited just for breathing 🙂 However, there are thresholds that the IRS uses to further investigate arrangements where additional tax might be collected. Lower taxable wages are not the litmus test. It is how these wages interact with other financial commitments that could trigger an audit. For example, if you have a high mortgage interest payment (the IRS gets a report) and your taxable hourly would struggle to keep up with this, one could question whether you had other sources of income that are not being reported. Also, an agency whose tax returns show a smaller amount of wages in comparison to a larger amount of travel expenses could trigger an audit that would require a review of the travelers return.
Lastly, should I take the contract? There is no right or wrong answer to this if the conditions noted earlier are met. The answer really rests in the other areas that we mentioned. Also, don’t decline a contract for this reason alone especially when you have a trustworthy recruiter (very important), its a destination you really want (you’ll have a lifetime of memories). or the agency has a lot of contracts to choose from. Loyalty does have its perks.
WELLINGTON, NEW ZEALAND – October 28, 2018 in Wellington, New Zealand. (Photo by Mark Tantrum/ http://marktantrum.com)
Wrote this article for The Staffing Stream regarding cross-border providers. If you’ve ever been curious how taxes could affect Her Royal Highness the Duchess of Sussex, Meghan Markle, click below for an interesting read!
The 2020 standard mileage rate for transportation or travel expenses is now 57.5¢ for all miles of business use.
The 2020 standard mileage rate is 17¢ per mile for use of an auto for medical care.
The standard mileage rate is 14¢ per mile for use of an auto for charity.
Keep in mind for 2019 to 2025, a taxpayer can no longer deduct employment expenses unless they are in the military, or performing artists or states that allow it. Self-employed individuals and businesses can still deduct their mileage expenses.
The first edition of our updated newsletter “Candid Talks With Joe” is now available! There are quite a few new laws just passed and more included in this newsletter!
