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This is simply an example, so please bear with me.

ExxonMobil (headquartered in TX) offers me a software development position as a W2 employee, with my total compensation being $5,000/month. They give me two options:

  • As W2, base salary is $5,000/mo.
  • As W2, base salary is $2,500/mo + $850/mo car allowance + $1,650/mo per diem.

In both, the total compensation is $5,000/mo. The difference is the division in pay.

The benefits are the same in both.

I'm leaning towards the 2nd option since I would pay less in SS and medicare. But then again, I'm new to this so that's why I ask.

Which would you choose?

Note: I chose ExxonMobil because they're in Texas.

  • A per diem is an allowance paid to a person that is travelling in lieu of paying the individual's actual travel expenses (i.e. rather than saving receipts for every meal, you just get a flat $x for meals per day). The per diem rate should vary based on where you are travelling to-- if you're travelling to San Francisco, the rate should be higher than if you're travelling to Topeka. So the per diem will vary every month based on where you are travelling to and how many days you are travelling. You can't just deem half your salary non-taxable as it sounds like someone is suggesting. – Justin Cave Dec 21 '18 at 18:57
  • They suggested it, and they're a Fortune 500 company. Why would I question it? But my question is: Which would you choose? – Meyers Dec 21 '18 at 19:04
  • Well, until the IRS comes to tell you that you owe them a pile of cash for under-reporting your taxes (plus penalties, fees, and interest) for however long you're there, the second option would be vastly preferred. If it was legal, no one would ever get paid primarily in salary. See, for example irs.gov/pub/irs-regs/perdiemfaq&a.prn.pdf on what makes a per diem non-taxable. It does not sound like you meet the criteria so either you're going to be paying taxes on the per diem (and thus the two approaches are a wash) or you'll be committing tax fraud. – Justin Cave Dec 21 '18 at 19:09
  • I have to believe that either 1) This is not really a job with a Fortune 500 company (who I assume are not going to be doing obvious tax evasion), 2) Whoever is offering you the two options is fundamentally mistaken that these are valid options, or 3) Both the car allowance and the per diem are going to be fully taxable as wages to you completely negating the tax benefit. – Justin Cave Dec 21 '18 at 19:36
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I would pay less in SS and medicare

which could also make your social security benefit smaller. When determining the benefit amount at retirement they look at the amount you made over your career.

Using the calculator on the Social Security website with a DOB of 6/15/1980

if you make 60K a year the benefit at age 70 would be $2,637.00 a month. if you make 30K a year the benefit at age 70 would be $1,651.00 a month.

now that assumes that you would always shelter half your pay.

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