Clark Paulsen, Division Chief
Taxation for Long-Term Assignments
References: Payroll Procedure Manual N 141, N141.1 and N141.1.2.
Introduction
Long-term assignments are classified into two categories: Temporary and Indefinite Assignments. When an employee travels away from home on business for extended periods of time, an employer must determine whether the travel is temporary or indefinite. This decision must be made when the travel is planned and not when it is completed.
Temporary Assignments
Temporary Assignments are defined as employment away from home in a single location wherein the employment is realistically expected, and in fact, lasts one year (365 days) or less.
- Travel reimbursements for meals, lodging, transportation, etc., while on temporary assignments are not taxable income to the employee.
An assignment becomes taxable:
- If an employer initially assigns an employee to a temporary assignment and later determines that the assignment is now expected to last more than one year, reimbursements are immediately taxable from that day until the end of the assignment. See example below.
Example:
| Original Assignment Dates | Taxable | Date of Change to Assignment Dates | New Assignment Dates | Taxable |
|---|---|---|---|---|
| 01/05/2005 - 09/30/2005 | No | 08/31/2005 | 01/05/2005 - 03/05/2006 | Yes, effective 8/31/2005 |
No adjustments are made to previously non-taxed reimbursements.
Indefinite Assignments
Indefinite Assignments are defined as employment away from home in a single location wherein the employment assignment is realistically expected to last more than one year.
- Travel reimbursements for meals, lodging, transportation, etc., while on indefinite assignments are taxable income to the employee.
- Travel expenses incurred while on short-term business away from the LTA location are not reported as taxable income.
- If at the time of the assignment, it is expected to last more than one year, the benefits are taxable from the start date of the assignment regardless of the actual length of the assignment. See example below.
Example:
| Original Assignment Dates | Taxable | Assignment Actually Ends | Taxable |
|---|---|---|---|
| 01/05/2005 - 03/05/2006 | Yes | 08/31/2005 | Yes |
No adjustments are made to previously taxed reimbursements.
See Tax Withholding and Reporting Requirements for applicable tax rates.
Breaks in Assignments
Short breaks in either Temporary or Indefinite Assignments do not automatically create a new assignment. The Internal Revenue Service and the U.S. Supreme Court have ruled that breaks between assignments as long as four to six weeks within a 12 month period do not necessarily terminate a long-term travel Indefinite Assignment for tax purposes. Employers must consider the facts and circumstances to determine the true intent of the assignment.
An employee's return home for weekends or incidental short-term travel to another location does not break the continuity of a long-term assignment.
Changes to Assignments
For information regarding changes to assignments, employees should:
- See Long-Term Assignment Information and Certification of Subsistence Rates.
- If applicable, see Long-Term Assignment Differential.
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