By Debbie Fledderjohann, President of Top Echelon Contracting

Imagine this: You receive an offer for a school-based contract assignment that is too good to pass up.  Not only is the pay rate higher than the other offers you have received, but you would also get full per diem even though you are intending to permanently relocate your family to your new work location. Sounds like a no-brainer, right? Well, just remember, if it’s too good to be true, it probably is.

The intention of per diem is to reimburse a taxpayer for whom it is impractical to return home each night after work and therefore is forced to incur duplicate living expenses while away from home. According to the Internal Revenue Service (IRS), your “tax home” is usually your main place of work or business. However, if you don’t have a main place ofwork, as is the case with many school-based therapy contractors, the IRS may consider the place you live to be your tax home if you:

1. Perform part of your business in the area of your main home and use that home for lodging while doing business in the area.
2. Have living expenses at your main home that you duplicate because your work requires you to be away from that home.
3. Have NOT abandoned the area in which both your historical place of lodging and your claimed main home are located; you have family members living at your main home; or you often use that home for lodging.

The first point doesn’t usually apply to school-based contract therapists, but #2 and #3 may. Therefore, a school-based contract therapist would normally be considered eligible for per diem when they maintain a residence near their contract assignment in addition to their main home.

If you are relocating your family to your new work location, it is unlikely that you will be entitled to per diem because you will have “abandoned the area in which both your historical place of lodging and your claimed main home are located.” You are not duplicating expenses because you are only maintaining one residence. In this situation, the IRS will consider your new location to be your tax home. Please see IRS Publication 463 at http://www.irs.gov/pub/irs-pdf/p463.pdf for more information.

You are also not eligible if you constantly move from place to place to follow jobs and don’t have a place where you regularly live. In this situation, you are considered to be an itinerant (transient). Therefore, you cannot claim per diem because you are never considered to be traveling away from home.

While an offer of full per diem may be tempting, you are likely exposing yourself to IRS scrutiny in the future when you accept per diem but aren’t maintaining two residences. Ultimately, YOU are the one who is liable for the nonpayment of taxes if you are ever audited by the IRS.

Top Echelon Contracting, a back-office service that employs a number of school-based contract therapists, only offers full per diem to contractors who maintain two residences.  This is such a serious IRS issue that Top Echelon Contracting requires each contractor who appears to be eligible for per diem to complete a Per Diem Eligibility form.  The form requests the addresses of both residences, the mileage between the residences and work location, and a certification statement confirming duplicate living expenses are being incurred and not reimbursed by any other party.

If you are offered full per diem but aren’t maintaining two residences, we recommend you consult with a tax professional or the IRS before accepting the offer. While accepting full per diem may put extra money in your pocket now, it could come back to haunt you in the future.

This article is for informational purposes only. It should not be construed as legal or tax advice.

About the Author:  Debbie Fledderjohann 

Debbie Fledderjohann is the President of Top Echelon Contracting, the recruiter’s back-office solution.  Since 1992, Top Echelon Contracting has helped direct-hire recruiters successfully add contract staffing to their business model.  They handle all the legal, financial and administrative responsibilities of a contract placement.  Fledderjohann also writes a blog regarding all the critical issues for any back-office or legal employer.