Compensation

[Guest Lex]

Does anyone know if compensation as defined in 3121(a) includes a per diem paid as taxable wages?

[jaemmons]

IRC section 3121 deals with exclusion of non-cash related payments to or for an employee and/or dependents, as well as payments made to an employee which they could be expected to deduct on their 1040. Determining whether or not to include the per diem depends upon whether or not the employer has an "accountable" or "non-accountable" reimbursement plan. If the employer only reimburses what the employee can justify on an expense report, then it can be excluded from wages, since the expenses would have been deductible to the employee. However, if the employer advances the money and doesn't ask for an expense report or receipts, then there is no justification as to whether or not the employee incurred deductible expenses, and as such, the employer MUST count the "per diem" as wages.

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