Hi, my husband has worked in contract work within plants for many years. He has been with his current contractor for about 9 months. They are now offering per diem through plant which makes his contractor to have to do this. They are suppose to be paying $60 per day and should have been doing this the last two months. The guys received their first per diem check today and only received $42 a day (they took out processing fees for the other $18) plus they took out for FICA and Medicare taxes. All of the other contract companies are not being taxed for this and my husband has never been taxed through other companies before for per diem being paid for the first year. He was told after the first year then they could tax. Is this correct? Who would he call or what can he do in the case. Thanks for you help!

This is potentially complicated. Wages are always taxable. Calling wages "Per Diem" or anything else does not make wages non-taxable. There are no "magic words" anywhere in the law where calling wages something else makes wages non-taxable. This includes the phrase "Per Diem".

Expense reimbursements are sometimes non-taxable but only if something called the "accountable plan" rules are followed. The words "Per Diem" have a very narrow meaning in the Internal Revenue Code. They are potential fair harbor exception to hard receipts for expense reimbursements. The main accountable plan rules can be found in IRS publication 463. The Per Diem variation of the accountable plan rules can be found in IRS publication 1542.

If each and every one accountable plan rules discussed in IRS publications 463 and 1542 is followed, then you have a non-taxable transaction. If anything else occurs, then you have a taxable transaction.