Tax Reform Proposals Will Influence Staffing Agency Reimbursement Policies

If you have been following the progress of the tax reform proposals, you will find one provision common between the Senate and House versions that will likely change how staffing agencies approach their per diem reimbursement policies for employees working assignments away from home. Under current law, when a staffing provider is working away from their tax home and incur travel expenses of transportation, meals and lodging, they can deduct the expenses that are greater than the reimbursements provided as an employee business expense on their tax returns.

Under the current tax reform bills, ALL employee business expenses (save a limited teachers deduction and reservists travel expenses) will no longer be deductible.

This has marketing and perceived value implications for the provider, especially in the industrial and healthcare staffing segments. In many healthcare staffing contracts for “travelers,” the transportation reimbursements are capped. Common caps are $300. Additionally, most meal reimbursements in these contracts are not the maximum found in the GSA tables, the difference of which the traveler can deduct (lodging deductions are only based on actual expenses).

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How can this affect staffing agencies? Here are some examples:

  • Provider drives 2,000 miles to the assignment and receives $300 for travel. The potential deduction is $1,070 for the mileage and around $350 for the lodging incurred in route. This $1,120 deduction ($1,070 + $350 less $300 reimbursement) would no longer be allowed under the new rules. When it dawns on the traveler that they cannot deduct this, the perceived value of the assignment drops.
  • Hospital-based seasonal traveler program provides lodging and transportation, but the amounts are paid under a non-accountable plan, meaning that they are treated as taxable income. Under current law, the traveler can deduct the lodging, the transportation and the meal per diem for the area. Under the new proposals, none of this is deductible.
  • Staffing agency model of reimbursement is to provide housing and a capped transportation allowance but nothing for meals. Under current law, traveler can deduct the full meal per diem for the area plus the excess of transportation over then travel allowance. Under proposed, law, zero.
  • Because the provider will not be able to deduct ANY licenses, uniforms, CEUs under the proposed law, the provider will look to the staffing agency for reimbursements to cover these expenses.
  • Traveler’s contract is canceled and incurs travel expenses, car shipping expenses etc. Under current law, these are deductible, under the proposed law, zero. The perceived loss of income is will be greater with canceled contracts than before.
  • In industrial staffing, many providers incur high amounts of mileage without full reimbursements. This ability to deduct these expenses will be eliminated under proposed laws.

As of this writing, the tax reform bill has already passed the house and a similar bill is pending a vote in the Senate. These separate bills will have to be reconciled and passed before the going to the president for his signature. The probability of passage is great, as the Republicans are using the budget reconciliation procedures, where only 51 votes are required in the Senate. This is the same scenario that allowed the Affordable Care Act to be passed without one Republican vote. This time, it is the Democrats who cannot stop the process on their own.

If passed, the new rules would take effect on Jan. 1, so staffing agencies will need to review their reimbursement policies for both perceived and absolute value quickly. The various categories of expenses that are currently deductible may require a reshuffling of lodging/meal deductions to transportation, licenses and CEUs in a fixed bill rate environment. Even if the absolute amount of the reimbursements is the same, the provider’s perceived value of their assignment may be greater when all of these expenses are addressed instead of a narrower list. With the possibility of a corporate tax cut, there is also the possibility that the reimbursements can increase without affecting the overall agency profit or the taxable base wage.

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Joseph Smith

Joseph Smith
Joseph Smith is founder and president of TravelTax and TravelTax Canada. He also is on the Tax Compliance Committee for NATHO. He can be reached at jsmith (at) traveltax (dot) com.

Joseph Smith
Joseph Smith is founder and president of TravelTax and TravelTax Canada. He also is on the Tax Compliance Committee for NATHO. He can be reached at jsmith (at) traveltax (dot) com.

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