Are you familiar with the Per Diem rule? If you’re a physician doing locum tenens work, you want to be!
Per Diem comes from the Latin meaning ‘By Day’, and so the ‘Per Diem rule’ refers to a daily travel allowance. You can make use of the Per Diem rule to compensate for lodgings, meals and incidental expenses you incur when traveling on business. This fixed allowance can be used in place of your actual expenses.
If you’re a physician who does a lot of locum work, the per diem rule can be the best option for you. For starters, we know you guys rarely ever take time to eat a meal! Sometimes your actual expenses are so low, that taking the fixed per diem rate is more advantageous.
Secondly, although we do recommend keeping your receipts, using the per diem rate means less pressure to track all your expenses.
Deductions for Locum Tenens physicians
Who can deduct?
To claim back on expenses you incur when you’re on locum work, you must be considered a ‘Qualified Traveller’ which means:
- You’re staying overnight a fair distance from your tax home (50 miles or more is the industry standard), as opposed to being within commuting distance. When we say ‘tax home’ we’re not referring specifically to your house. According to the IRS, your tax home refers to the general vicinity in which your business or work is located.
- You’re lodging away from your tax home for no longer than a year in the same location, without a substantial break in work. The IRS has ruled that a three-week absence is not long enough to be considered a substantial break, but a seven-month consecutive absence is long enough to restart the year.
What can be deducted?
Per diem allows you to deduct on your lodgings, meals and incidentals. Let’s look at what that includes:
Lodging - You can deduct the cost of housing if temporary lodging is not provided by the locum tenens agency.
Meals and Incidentals - Meal allowances are broken down into breakfast, lunch, and dinner, and incidental expenses include things like dry cleaning on the road or tips and fees paid at your lodging.
What about travel?
If you’re driving to get to your assignment, you can deduct the cost of travel. This deduction would be at the standard mileage rate, not per diem - however, you don’t need to keep track of receipts for fuel, auto maintenance, car washes, etc.
What are the per diem rates?
The General Services Administration (GSA) sets the per diem rate for each state and city in the US. Rates can vary based on the geographic location because travel costs can vary so much from state to state. You’ll also see the per diem rate change as costs rise, so it’s important we stay on top of the changes year on year.
To understand how to navigate the GSA website and figure out the rates in your location, watch this short video we recorded.
What changes have been made to the rates this year?
The IRS brings out new rates once a year, usually on October 1. The new rules apply to anyone traveling for work from October 1, 2019, who meets the criteria laid out above. The two points below are of particular interest to locum tenens physicians:
The high-low substantiation method - Rates differ when you’re traveling to a high-cost locality. You can find a full list of high-cost localities in this notice. Rates for travel to these areas is $297, and for all other localities within the Continental United States (CONUS), rates are $200. Within these rates, the allocation for meals is $71 for high-cost localities and $60 for all other localities within CONUS.
No change to incidental expenses - The per diem rate for incidental expenses remains at $5.
Extra tips from us
It’s a smart move to continue to keep hold of your receipts - We always look at the difference between the actual expenses and the fixed per diem rate. It’s useful to keep your receipts to compare the two and see what’s best for you.
Keep track of locations and dates of travel - The first and last days of your stay are valued less than a full day rate (see the GSA site for the breakdown of your location). It can be helpful to keep an Excel spreadsheet or calendar so that you can look up the GSA.gov rate for your location and record the per diem amount proactively throughout the year.
If any of this is confusing, ask a specialist - We’re always on hand to help you decipher complicated tax rules. It’s why we do what we do.