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This is my first time as I'm an employee, so please bear with me.

My current salary is $4,000/month, plus $2,400 perdiem and $1,200 car allowance.

My 2019 W2 says that my wages are $48,000, and it displays the correct amounts for "Tax Withheld", "Social Security Tax Withheld", and "Medicare Tax Withheld". That's all correct. The perdiem and car allowance ($43,200) is not included in my W2.

I sent my W2 to my accountant, and he asks me if I have any other incomes besides the $48,000.

Should I tell my accountant about the per diem and car allowance? If so, is he going to ask me about monthly expense reports?

Also, even though I was supposed to do tons of traveling when I got hired in January 2019, I really never did travel during the year. My employer said that I would still get paid perdiem and car allowance regardless. Is it an issues that I'm getting paid perdiem and car allowance even though I'm not using it and I don't have invoices?

  • Is your per diem just a flat amount paid to you with every paycheck? Or do you have to fill out an expense report each time? – Nosjack Jul 13 at 17:53
  • My per diem and car allowance is a flat amount every month. I don't fill expense reports. – John Jul 13 at 17:56
  • As I mentioned in the question, I was supposed to travel, but never did. But I keep receiving the flat amount per month, and my employer said it was fine. – John Jul 13 at 17:58
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    Given "per diem" literally means "for each day" it might be more clear to cite it as $80 rather than $2400. – aroth Jul 14 at 5:10
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    "Should I tell my accountant ..." Trust your accountant! He or She is on your side! Don't trust internet strangers more than your accountant. – jpaugh Jul 14 at 22:48
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This is not a per diem. Your employer is calling it a per diem, but it simply isn't. It's just ordinary wages and must be taxed and reported as ordinary wages. As just the most obvious problem, consider this rule:

If you don’t prove that you actually traveled on each day for which you received a per diem or car allowance (proving the elements described in Table 5-1), you must return this unproven amount of the travel advance within a reasonable period of time. If you don’t do this, the unproven amount will be considered paid under a nonaccountable plan (discussed later). -- IRS Publication 463

Obviously, you didn't do that. So any amounts you can't prove are considered paid under a nonaccountable plan. That rule says:

Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2. -- IRS Publication 463

Now, it's hard to be sure from just what you've said. But it sounds like your employer either doesn't understand the rules or is trying to evade taxes. You can't just call part of an ordinary salary a "per diem" and thereby avoid payroll and income taxes on it. The employee has to be incurring actual business expenses due to travel for the IRS to consider it a per diem.

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    Nice answer! I'd add that whatever the circumstance, "Should I tell my accountant about ... [anything with money]" is always yes. – Jeffrey Jul 14 at 12:58
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    But this is a Fortune 500 company. How can it be that this check falls on me? – John Jul 14 at 17:12
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    @John I would be disappointed, but not surprised that an otherwise reputable company might try tax evasion. Yet, this issue might come down to a lack of communication between your boss and payroll --- after all, payroll expected you to travel a lot more than you actually did. – jpaugh Jul 14 at 22:54
  • @John Not to be overly dramatic, but Enron was in the top five Fortune companies before it collapsed from accounting fraud. Being in the Fortune 500 doesn't necessarily mean much. – Kris Harper Jul 15 at 16:16
  • @jpaugh, I never said I talked to my boss. I wrote that "My employer said that I would still get paid perdiem and car allowance regardless". The person I report to (ie. my "boss") doesn't work in payroll or HR. – John Jul 15 at 16:45
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Based on the information you've provided here, it sounds like the amount that your employer gave you calling it a "per diem" should be taxable. It also sounds like they are evading taxes, for both themselves and for you.

You do need to ask your accountant about this, and/or a tax attorney. Normally, travel expenses that you are reimbursed for do not appear on your W-2 or your tax return, but if your employer is doing something improper, you need to find out if you will be in trouble for going along with it.

It is possible that there is a legitimate explanation why this amount should not be taxable and should not be on the W-2. It is also possible that you would be considered not-at-fault if you accept what your employer is telling you. A tax attorney should be able to answer both of these questions for you.

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  • I understand your point, but this is the first year I've had to fill my tax returns as a W2, so I know nothing about perdiems and car allowances. This is a Fortune 500 company. Why would a Fortune 500 be using me to evade taxes? – John Jul 14 at 17:13
  • It doesn't make sense that the burden falls on me. – John Jul 14 at 17:14
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    @John I agree with you to a point. Certainly, you are not responsible for laws broken by your employer. At the same time, you, as an American citizen, are responsible for paying your taxes correctly, and you don’t want to make a large error there. Telling your accountant what is going on is the right thing to do; he is on your side. As I said, it is possible that everything is fine; Fortune 500 companies don’t often try small-time tax evasion tricks, and perhaps we don’t have all the info. – Ben Miller - Remember Monica Jul 14 at 17:23
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    @John Are you feeling pressure because the tax deadline is tomorrow? Certainly this would have been easier to take care of months ago, but if you need more time, file a request for an extension, then get everything straightened out before filing your return. – Ben Miller - Remember Monica Jul 14 at 17:25
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Your per diem is reasonable if you were expected to be "on the road" most of the time. The IRS allows a flat rate per diem as long as you file an expense report. (Because of this rule, your employer generally doesn't require receipts for small purchases. They don't want your scan of $2.39 from Dunkin Donuts.)

The problem is this system doesn't interact well with COVID–19 travel restrictions. At least in April, Bloomberg News thought it was an open question whether employees forced to work at home, far from the office, were entitled to non-taxable per diems (see Question 65 et seq.).

I suggest you start by giving your HR department a call.

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    "I suggest you start by giving your HR department a call." is the answer for this particular person, especially for one working in Fortune 500 company as all of them have enough lawyers and HR folks to sort that out... I really doubt company would like such quite an expensive worker to have troubles with IRS - I bet there is even internal web site with this exact answer already... – Alexei Levenkov Jul 15 at 0:51
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    COVID-19 doesn't affect my 2019 income tax return. The virus started this year. – John Jul 15 at 14:16

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