City By City or Standard Daily Rate
There are two ways to calculate your per diem allowance -- standard daily rate
and city by city. Each has its advantages. Domestically, either method might yield
the best result however if you fly a lot of international pairings, city by city is
clearly the best option. Per diem rates are broken down into three parts- CONUS
(domestic), OCONUS (Alaska, Hawaii, US territories, etc.) and International.
Several per diem allowance rates exist, and it is important to choose the correct
one.
Per Diem Calculation
For example, Aspen (ASE) currently has a $288 per diem allowance (during ski
season of course), but this includes lodging which is typically paid for by the
airline. The amount associated with Meals and Incidentals Expense (M&IE) is only
$71 per night. This is using the city by city method. Conversely, the standard
daily rate for transportation workers is currently $63 for CONUS, and it changes
slightly for international / OCONUS destinations to $68 (this was recently
increased starting fiscal year 2016 which begins October 1 2015).
This allowance will automatically get adjusted to a 3/4-day for the beginning and
end of your trip, and your last overnight will be used to compute the per diem for
the last day of your trip. Regardless of what you have read in IRS Publication 463,
the Tax Court and industry practices automatically apply the 3/4-day convention
to the first and last day. Here are some examples:
Overnights City by City Per Diem
ASE, SFO, ORD $53.25 + $71 + $71 + $53.25 = $249
ASE, GRB, SFO $53.25 + $46 + $71 + $53.25 = $224
FAR, GRB, FSD $34.50 + $46 + $46 + $34.50 = $161
Standard Daily Per Diem
ASE, SFO, ORD $47 + $63 + $63 + $47 = $220
ASE, GRB, SFO $47 + $63 + $63 + $47 = $220
FAR, GRB, FSD $47 + $63 + $63 + $47 = $220
As you can see, each method has its advantages. If you fly to a lot of smaller
cities, generally speaking the standard daily rate is preferred versus a mix of
larger and smaller cities. If you fly internationally even occasionally, the city by
city method is generally preferred. Heck, LHR is over $180 per night. You can
only use one method for the entire tax year. In other words, you cannot switch
back and forth between pairings. We compute your per diem using both methods,
and use the per diem allowance with the greatest deduction.
Per Diem Deduction
Most domestic crewmembers who work an average of 15 days per month will
have a per diem allowance of around $9,000. Let’s say your airline reimburses
approximately $5,500. So the portion that is not reimbursed is $3,500. Because
you are Department of Transportation (DOT) employee, we multiply this number
by 80% (if you were not a DOT employee, it would be reduced by 50% instead
of 20%, so you got that going for you). Therefore your per diem deduction is
$2,800 (80% of $3,500) which at a tax rate of 15% equals $420 in your pocket.
International crewmembers can easily see a $10,000 deduction which is $1,500
in your pocket. Seniority is everything as they say.
Locals, Turns, Day Trips, CDOs, SDOs, Highspeeds
Questions come up all the time about two types of flying- ones that do not involve
an overnight, and ones that have overnights that are continuous or split duty.
The rule is simple - any time away from your tax home (domicile) that requires
SUBSTANTIAL rest is allowed for a non-taxable per diem reimbursement and
subsequent tax deduction. Substantial rest is not completed in the crew lounge
or FL350 - sorry. Having said that, resting in a hotel during a continuous or split
duty (CDO, SDO) overnight is considered substantial rest, and therefore a per
diem deduction is allowed. For example, if you do a single CDO/SDO it would be
3/4-day on the first and last day. If you do two CDOs/SDOs back to back, it would
be 3/4-day on the first day, full day on the second day and 3/4-day on the last
day. If you cannot get enough, read the famous Bissonnett Tax Court case
involving a ship Captain who did local trips, but was able to deduct per diem
expenses.
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