So let’s start with a quick history lesson!
Can you name the three things that happened in 1913 relevant to taxation?
Nothing? Let me help you out.
- It was the birth year of the income tax
- The passing of the 16th amendment (taxes on goods purchased)
- …wait for it… The inception of the IRS!
Tough year for Americans, right?
Well, over 100 years later all three things are still in place, but of course things are now even more complicated. This holds true in the travel and staffing industry as well, which is why we are writing this blog!
You will often hear buzz words like “tax advantage”, “tax-free”, “per diem” or even “allowance”.
Different companies use different words and phrases to “advertise” their offerings. And unfortunately companies also use different standards and guidelines.
We recommend that you always consult with your personal tax advisor on any money you accept or earn that is tax-free. The certainty of knowing now is better the hassles you may encounter later. We also recommend you do a little research before choosing a company. Any company that offers “wage replacement” (fancy words for cranking down your hourly wage to put more money in a tax free bucket) should raise a red flag. If your hourly rate is not competitive for the market, it could expose you to some problems with the IRS down the line.
As with anything, if the tax free portion of your compensation or benefits sounds too good to be true, it probably is.