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  1. #1
    Splitz is offline Junior Member
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    Per Diem as Income?

    What is the name of your state (only U.S. law)? Texas

    Ok experts, I can't get a straight answer for my Issue, and I need one.

    I started a job 2 weeks ago, the pay is $26/hr but split $8/$18. $8/hr is base pay, and the $18 is PER DIEM.

    I had to take a job 273 miles from home to get re-employed to support my family and obviously, I have child support ordered @ $590 + $155 in arrerages as ordered in Jan 2006. But the Texas system was messed up and finally got that sorted out.

    So, as of right now, my payments are $590 + $155 (for arrerages), on $8/hr this isn't doable because I still have support myself in the "new" location and relocation isn't possible because of housing issues.

    Is the per diem counted as income? Even though the IRS doesn't tax per diem, and on the checkstub, it isn't in the "Regular Earnings" category. The per diem is on the deductions column.

    My ex-wife and I have meeting with the child support office on the 19th to hash it out and I got a nasty text from her saying "plan on an increase" from what I'm already paying. I don't mind paying the arrerage amount, but it is the base amount that needs to be changed.
  2. #2
    LdiJ is offline Senior Member
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    Quote Originally Posted by Splitz View Post
    What is the name of your state (only U.S. law)? Texas

    Ok experts, I can't get a straight answer for my Issue, and I need one.

    I started a job 2 weeks ago, the pay is $26/hr but split $8/$18. $8/hr is base pay, and the $18 is PER DIEM.

    I had to take a job 273 miles from home to get re-employed to support my family and obviously, I have child support ordered @ $590 + $155 in arrerages as ordered in Jan 2006. But the Texas system was messed up and finally got that sorted out.

    So, as of right now, my payments are $590 + $155 (for arrerages), on $8/hr this isn't doable because I still have support myself in the "new" location and relocation isn't possible because of housing issues.

    Is the per diem counted as income? Even though the IRS doesn't tax per diem, and on the checkstub, it isn't in the "Regular Earnings" category. The per diem is on the deductions column.

    My ex-wife and I have meeting with the child support office on the 19th to hash it out and I got a nasty text from her saying "plan on an increase" from what I'm already paying. I don't mind paying the arrerage amount, but it is the base amount that needs to be changed.
    It sounds to me like your employer is playing fast and loose with the IRS and the state. No one pays per diem for $8.00 an hour jobs...particularly at the rate of 18.00 per hour. That's 144.00 a day and that would be a REALLY high per diem rate.

    So, you are going to get social security credits based on 8.00 an hour, if you get laid off you are going to get unemployment based on 8.00 an hour, if you get hurt you are going to get worker's comp based on 8.00 an hour, etc., etc. etc. In the meantime, your employer is saving beaucoup bucks in employer costs and taxes.

    Expect to pay child support based on the whole $26.00 per hour...and expect to have some trouble with the IRS down the road.
  3. #3
    Splitz is offline Junior Member
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    Quote Originally Posted by LdiJ View Post
    It sounds to me like your employer is playing fast and loose with the IRS and the state. No one pays per diem for $8.00 an hour jobs...particularly at the rate of 18.00 per hour. That's 144.00 a day and that would be a REALLY high per diem rate.

    So, you are going to get social security credits based on 8.00 an hour, if you get laid off you are going to get unemployment based on 8.00 an hour, if you get hurt you are going to get worker's comp based on 8.00 an hour, etc., etc. etc. In the meantime, your employer is saving beaucoup bucks in employer costs and taxes.

    Expect to pay child support based on the whole $26.00 per hour...and expect to have some trouble with the IRS down the road.
    The high per diem is an accepted practice in the Aviation business, especially as a contractor.

    Many, many, many companies that contract out their aircraft maintenance do it this way to get qualified people to repair their aircraft. I only took this job to pay the bills, I don't like the life of a contractor which can change from day to day.

    With the line of work I'm in, the per diem is enough for me to live on, and not much else, which is why per diem shouldn't be used in calculations for child support. It seems to be up for interpretation on whether or not it is counted as "income". It isn't a wage, its an entitlement for living expenses since my wife and kids like in Fort Worth, and I'm working in San Antonio.
  4. #4
    LdiJ is offline Senior Member
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    Quote Originally Posted by Splitz View Post
    The high per diem is an accepted practice in the Aviation business, especially as a contractor.

    Many, many, many companies that contract out their aircraft maintenance do it this way to get qualified people to repair their aircraft. I only took this job to pay the bills, I don't like the life of a contractor which can change from day to day.

    With the line of work I'm in, the per diem is enough for me to live on, and not much else, which is why per diem shouldn't be used in calculations for child support. It seems to be up for interpretation on whether or not it is counted as "income". It isn't a wage, its an entitlement for living expenses since my wife and kids like in Fort Worth, and I'm working in San Antonio.
    Again, expect to pay child support on the whole amount. Thank you for giving me that information on the aviation industry in Texas. I will be reporting it to the IRS and will have a chance at a fairly hefty reward...because the industry's "accepted practice" is as illegal as it gets.

    It is not illegal to pay someone "per diem" if that is the only way to get qualified people available to do the work. It is however, illegal as heck when its designed to cheat the federal government. Paying someone just above minimum wage, and then seriously padding their income with "per diem" is just that.

    If the job is only worth $8.00 an hour, then it would be easy to find someone local to do it and per diem wouldn't be needed. If the job is really worth a lot more than $8.00 an hour, but its padded with per diem, its a crime.
  5. #5
    Splitz is offline Junior Member
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    Quote Originally Posted by LdiJ View Post
    Thank you for giving me that information on the aviation industry in Texas.
    Line them up then:

    Texas
    Florida
    Virginia
    Indiana
    Alabama
    Louisiana
    Pennsylvania

    I don't believe you think you have found a goldmine for reporting something that the IRS is already aware of. This isn't new, and has been accepted for at least the last 20 years.

    Also, keep in mind, if you live less than 50 miles from the place of employment (which I don't its ~273) you get dinged the full taxable amount (no per diem). Its the contractors that live outside of the 50 mile window that are authorized the per diem per IRS Code.
  6. #6
    LdiJ is offline Senior Member
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    Quote Originally Posted by Splitz View Post
    Line them up then:

    Texas
    Florida
    Virginia
    Indiana
    Alabama
    Louisiana
    Pennsylvania

    I don't believe you think you have found a goldmine for reporting something that the IRS is already aware of. This isn't new, and has been accepted for at least the last 20 years.

    Also, keep in mind, if you live less than 50 miles from the place of employment (which I don't its ~273) you get dinged the full taxable amount (no per diem). Its the contractors that live outside of the 50 mile window that are authorized the per diem per IRS Code.
    I am a tax professional and accountant. There are lots of things that have been "accepted practices" that the IRS has not caught onto yet...and I will be racking them up.

    I spending most of next week at the IRS forums, and I am printing out this thread to take with me.

    I should also add that the guys living within 50 miles should ONLY be getting $8.00 an hour if this was being done legally...since they are not eligible for per diem. That is what is going to make the IRS sit up and pant. The fact that you are all getting paid the same amount of money but some of you are having the bulk of your pay classified as per diem.
    Last edited by LdiJ; 07-08-2010 at 01:35 PM.
  7. #7
    Silverplum is offline Senior Member
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    Quote Originally Posted by LdiJ View Post
    Again, expect to pay child support on the whole amount. Thank you for giving me that information on the aviation industry in Texas. I will be reporting it to the IRS and will have a chance at a fairly hefty reward...because the industry's "accepted practice" is as illegal as it gets.
    Does the IRS tax you on the reward?
  8. #8
    Splitz is offline Junior Member
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    Quote Originally Posted by LdiJ View Post
    I am a tax professional and accountant. There are lots of things that have been "accepted practices" that the IRS has not caught onto yet...and I will be racking them up.

    I spending most of next week at the IRS forums, and I am printing out this thread to take with me.

    I should also add that the guys living within 50 miles should ONLY be getting $8.00 an hour if this was being done legally...since they are not eligible for per diem. That is what is going to make the IRS sit up and pant. The fact that you are all getting paid the same amount of money but some of you are having the bulk of your pay classified as per diem.
    I think you should make yourself more aware of IRS Publication 1542. And for sake of argument : [url]http://www.irs.gov/pub/irs-pdf/p1542.pdf[/url]

    This explains what is allowed and what's not allowed. My main domicile is NOT San Antonio, Texas. It is, in fact Fort Worth, Texas. And according to the Per Diem table per Pub 1542, the max per diem is $183, and I'm getting $144.

    It specifically states the 50 mile rule in regards to awarding per diem, or the entire taxable amount.
  9. #9
    LdiJ is offline Senior Member
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    Quote Originally Posted by Silverplum View Post
    Does the IRS tax you on the reward?
    The IRS taxes you on everything....
  10. #10
    Silverplum is offline Senior Member
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    Quote Originally Posted by LdiJ View Post
    The IRS taxes you on everything....
    Figures.
  11. #11
    CJane is offline Senior Member
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    So you make $16K/year as taxed income. Which is less than my 16 year old neice makes working at Dairy Queen.

    And then in untaxed income (essentially, cash money), you make another $37K, give or take.

    And you want child support set on ONLY the $16K? Which means you'd be paying, what? ... $300/month? (roughly 20% of 16K/12)

    That's laughable.

    You should probably budget for something more like $850/month and hope for a compromise.

    And I suspect that Ldi is not focused on the AMOUNT of per diem you get. It's the differential between your base pay and your per diem pay.

    Also, the fact that your per diem is counted on an hourly basis is VERY odd. It should be a fixed amount regardless of number of hours worked.

    Here's an interesting article from TX regarding the aircraft industry, shady per diem pay, and a court case...

    Texas Employer Loses in Battle Over “Per Diem” Pay
    June 12, 2010 by Julie Plowman, J.D.

    Calculating the amount of overtime that must be paid to your hourly employees may be harder than you think. A recent decision from the Fifth Circuit Court of Appeals is a reminder that getting it wrong can have serious consequences.

    In Gagnon v. United Technisource, Inc., an employee claimed that his employer paid him a “per diem” as a scheme to lower his regular rate of pay for overtime purposes. The employee was highly skilled at painting the interior and exterior of aircraft. He was paid an hourly rate of $5.50 (slightly above minimum wage at the time of his hiring), and in addition, was paid an additional $20 per hour, which was designated as a “per diem.” When calculating overtime, the employer didn’t include per diem payments in the employee’s regular rate of pay, meaning that he was paid time and a half based on $5.50 per hour, rather than based on $25.50 per hour. This resulted in a significant pay difference in any week in which the employee worked more than 40 hours.

    The Fair Labor Standards Act (FLSA) requires that covered employers use the regular rate of pay to calculate the amount of overtime due for any hours worked over forty per week. And, the FLSA broadly defines “regular rate” as the hourly rate actually paid to the employee for “all remuneration for employment.” But sometimes it’s tricky to determine just what to include in this regular rate. Businesses that pay bonuses, commissions, premium or shift differential pay, non-monetary wages such as meals or lodging, or other non-typical compensation must be especially cautious when figuring which of these items to include.

    In Gagnon, the court stated that the employer tried to avoid paying Gagnon a higher regular rate by artificially designating a portion of his wages as per diem pay. The court was suspicious of the employer’s motives because the hourly rate of $5.50 per hour was so far below typical wages for aircraft painting, which often ran $20-$24 per hour. The court also found it troublesome that the employer based the “per diem” payment on the number of hours work, rather than the number of days worked. These facts led the court to affirm a lower court ruling awarding Gagnon more than $8,000 in wages, including double damages for a willful violation of the law by the employer, and more than $55,000 for Gagnon’s attorney fees.

    In many instances, per diem payments can be excluded from regular rate, along with certain other payments such as discretionary bonuses. However, employers should only exclude payments from the calculation of regular rate after a full and careful examination of FLSA requirements.
    More on the same case:

    The DOL also takes the position that if the amount of the per diem is based upon and thus varies with the number of hours worked per day or week, such payments are a part of the regular rate in their entirety. The DOL Field Operations Handbook notes: “However, this does not preclude an employer from making proportionate payments for that part of a day that the employee is required to be away from home on the employer’s business. For example, if an employee returns to his home or employer’s place of business at noon, the payment of only one-half the established per diem rate for that particular day would not thereby be considered as payment for hours worked and could thus be excluded from the regular rate.”

    In this case, the court adopted the DOL’s position regarding per diem pay. Because Mr. Gagnon’s per diem payment was based on the number of hours he worked, it had to be counted as part of his regular rate, and thus, included in the overtime calculation. UTI shortchanged Mr. Gagnon by excluding the per diem pay from the OT calculation.
    So, if that amount has to be included in your "regular pay" amount when the employer is figuring overtime (which means you should be paid time and a half @ $26/hour, not $8), why wouldn't it also be included as "regular pay" for child support?
    Last edited by CJane; 07-08-2010 at 02:54 PM.
  12. #12
    Gracie3787 is offline Senior Member
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    Quote Originally Posted by Splitz View Post
    Ok experts, I can't get a straight answer for my Issue, and I need one.
    I find it hilarious that you ask "experts" for an answer and when a true tax expert answers, you do nothing but argue with her.

    Have fun dealing with the CS and IRS at the same time, you're life is going to get REAL complicated real fast if you continue on the course you're on.
  13. #13
    TinkerBelleLuvr is offline Senior Member
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    Dude - I've been watching this thread. What you employer is doing is royally screwing you over with this whole per diem deal. Then, when it is said and done, CSE and the IRS will finish what the employer started.

    You guys would have been fine, except for the fact that they pay the folks who live within 50 miles the same amount as those who live further out. The ONLY differentiation is the distance. They get audited and EVERYONE will be having issues.

    Please advise where you would like the vaseline sent.
  14. #14
    LdiJ is offline Senior Member
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    Quote Originally Posted by TinkerBelleLuvr View Post
    Dude - I've been watching this thread. What you employer is doing is royally screwing you over with this whole per diem deal. Then, when it is said and done, CSE and the IRS will finish what the employer started.

    You guys would have been fine, except for the fact that they pay the folks who live within 50 miles the same amount as those who live further out. The ONLY differentiation is the distance. They get audited and EVERYONE will be having issues.

    Please advise where you would like the vaseline sent.
    I had a client/friend who worked for a company that was laying fiber optic underground cable.

    His home was in Indiana, but he rarely spent more than two months a year there because he was always "on assignment". He was paid 20.00 an hour and got DAILY per diem of anywhere from 75.00 a day to 125.00 a day depending on what part of the country he was in. His assignments were fairly short term, anywhere from 3 to 9 months depending on how much cable had to be laid.

    That would never have been nor never was questioned by the IRS. If the company hired any local people (which was how he got the job in the first place, as a local person) the local people got paid the same 20.00 an hour, but with no per diem.

    I really do expect to have some fun with this one next week. If this is really "accepted practice" in the industry its got a lot of "meat" for the IRS to sink their teeth into.
  15. #15
    TinkerBelleLuvr is offline Senior Member
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    I agree. We had a lot of contractors who worked for us. They received the regular hefty rate AND the per diem.

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