Full Per Diem Vs M+IE: Full Per Diem is an amount of tax free money given to an employee for living expenses to cover housing, transportation, meals, and incidentals while working away from home. M+IE covers meal and incidental expenses only, while the company covers the hotel and transportation accommodations. Per diem typically can be offered for a maximum of 1 year. On some long term projects the company will lay off employees for a month or two, then re-hire them in order to pay them per diem again.
Most jobs I have worked are short term jobs, ranging from a couple weeks to a month. This year so far I worked 4 jobs that I received M+IE per diem on for a total of roughly 85 days. Over the years from my own experience and the experiences of my co-workers I have learned some interesting ways to maximize the utility of your per diem dollars. Most employers either give per diem on a debit card or on a physical check. One employer I worked for actually handed out cash every 3 days (small crew, but still, that’s a lot of cash!)
How To Save Per Diem Money On The Road
Full Per Diem allows the most leeway to save some serious money. Some companies may offer $160 per diem on a job, while others might only offer $65. It is up to the discretion of the company involved. Obviously if you work for a company offering only $65, then chances are you won’t be able to save much, if any of your per diem. I have seen M+E Per Diem as low as $35 and as high as $50 per day.
For someone receiving $160 per day, the tax free savings can add up quick. Let’s assume our worker in this scenario is on a job that lasts 6 months. Over the course of 180 days, the total of his per diem will be $28,880 of tax free money.
Housing: It may be possible to share a room in a lower rate motel (Motel 6, Budget Inn) and only have to pay around $20 a day in housing. Sharing a room certainly works best when you can work opposite shifts as the other person. I know of a few people who own campers and will take them with to the job site, most areas have camp grounds where a lot can be had much cheaper than a hotel room. When working on a longer job there can be significant savings from renting a house with several other workers.
Transportation: Avoiding renting a car is key here. Having an inexpensive reliable and fuel efficient vehicle is the way to go. Most jobs will either pay mileage or a flat rate from travel in and travel out. This in and of itself can be a decent money maker. Regardless of how much you make on the travel in and out money, you would have to drive to and from work anyways if you were at home, so for the most part transportation isn’t even an extra expense. You can actually make some money off of transportation by carpooling with other people on the same shift staying in the same area as you are and charging them to ride in your car a flat fee for the week.
Meals and Incidentals:
Virtually all of the jobs I work are on M+IE, so I can’t save the big bucks that people on full per diem can. The upside is that my employer tends to put us in nicer hotels than we would get if we were paying our own way and we get decent rental cars. When it comes to M+IE my goal is to spend under $15 per day.
1. Hotel Breakfasts: Meal 1 free.
2. Pack a lunch: This isn’t always possible, but stopping at Walmart and getting some stuff to make a sack lunch will save around $5 every day over eating a fast food lunch or a plant cafeteria lunch. Even though we fly to sites I try to pack some paper plates, plastic silverware, and paper bags in order to avoid buying full packages that I won’t need on site.
3. Laundry: Laundry can get to be expensive in hotels. I pack dryer sheets and a few of the dry detergent packs with me when I travel to avoid paying high prices at hotels. If on a long job it might make sense to stop at the dollar store or Walmart and buy a cheap jug of laundry detergent.
4. Medicines: I always pack a small pharmacy when I travel. Take a few of every OTC drug you have with the avoid having to buy them on the road, Tylenol, Aspirin, Allegra, NyQuil, whatever you think you may need. When working on the road you tend to have to pay higher amounts for the convenience of these products. I once had to pay $2 to a hotel vending machine for 2 aspirin pills!
I have had some jobs where I have gotten my daily expenditures down to $10 a day, but that is really pushing it. I strive to hit $15 of daily expenditures which then allows me to save $35 per day on the jobs I earn a $50 per diem.
Per Diem Net Gain:
After paying for all of these expenses, our worker on full per diem still has around $120 left per day. This is $21,600 of tax free money he can pocket in addition to the wages he is earning over a 6 month period of time. A 3 month job would then be $10,800 and a 1 month job would be $3,600. I would recommend setting up a second bank account just for saved per diem and keeping track of it along with your other accounts using Personal Capital, (It’s free). This keeps your saved Per Diem separate so you can track how you are doing.
A worker on M+E who gets $50 per diem and spends only $15 a day would save $35 per day, over the course of 6 months would have $6,300. A 3 month job would then be $3,150 and a 1 month job would be $1,050. Still a decent amount of tax free money.
The best way to handle per diem jobs is to be a husband and wife team. Imagine working on a 6 month job with your spouse (obviously this works best for DINK couples), you use a camper or stay in a cheap motel room, the food and incidentals is the only expense that changes, so increase that by $20 a day and a total of $320 per day of per diem is grossed, minus $60 in total expenses equals $260 per day, or over 6 months: $46,800 in tax free money. A 3 month job would be $23,400 and a 1 month job would be $7,800. Heck, getting a pay check is almost icing on the cake!
What To Do With The Per Diem You Save:
I run situations in my tax planning spreadsheet to decide how much money to put into what types of tax advantaged accounts. Depending on yearly income it might make sense to max Roth IRAs, while in other years it might make sense to put all of my money into traditional IRAs. Currently the Roth works for me (at least partially) in my situation. I love that I can get tax free money from my employer and then effectively use that money to contribute to Roth IRAs, which will have tax free gains for ever. This is about as good of a deal as it gets!
Apart from retirement savings I think it is best to use excess per diem money the same way you would use other money you earn, add it in to the top line of the budget and distribute it accordingly. Effectively using per diem certainly can be a good method towards building wealth.
Taxes and Per Diem:
This is all tax free money. Nothing has to be reported to the IRS. On a similar note, you can not “claim” your per diem. I have heard of many people doing this and it is tax fraud. The only situation where you can receive a tax write off for per diem is if you are paid a per diem under the federal rate for the area you are in AND you incurred expenses greater than the per diem given.
- Federal Rate of $150
- Per Diem Paid of $75
- Legitimate expenses of $60
- Result: Nothing can be claimed on taxes. I have seen people argue that they should be able to claim $75 since that is the difference between what they are paid and what the federal rate is. Without legitimate expenses you can not claim this on your taxes. Do NOT do this!!!
- Federal Rate $150
- Per Diem Paid $75
- Legitimate Expenses $100
- Result: You can claim $25 per day as business expenses on your taxes. Since legitimate expenses exceeded per diem paid by $25 and it was still under the rate for the area, the difference can be written off on your taxes. This may or may not help your tax situation depending on whether your total itemized deductions exceed your standard deduction or not. If you plan to do this, it is important to keep records of your expenses because the IRS may audit you and require proof of these expenses. I would consider picking up a Portable Document Scanner to keep your receipts from getting lost.
With the recent tax law changes that doubled the standard deduction it will be much more difficult to claim your per diem in this scenario because the total of all of your itemized deductions would have to be greater than the standard deduction to do you any good. Even then, you are only getting value for the expenses you have OVER the standard deduction amount.
Have you traveled for work and received a Per Diem? What strategies do you use to maximize your savings?