Temporary Domestic Assignments in the United States: Part 1
Are you thinking about a temporary domestic assignment for your employees?
If you are considering temporary domestic assignments, this Issue of Policy Matters (Part 1) will
cover: what is considered a short/long term assignment by the IRS, how a base home and
regular place of work are defined, and tax ramifications for TDA expenses. Offering employees a
temporary domestic assignment (TDA) may be the best solution if companies:
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Are looking to fill a position for temporary project work
Need a specialized skill at a particular location for a certain period of time
Want to train an employee at a certain location
Are reluctant to offer a full relocation package in order to control costs
Of course there are other reasons a company may provide a TDA, but these are some of the
most prevalent. SIRVA highly recommends all companies have a written TDA policy in place in
order to define the process, list reimbursable expenses, provide benefits in a consistent manner,
and help employees understand the tax ramifications for reimbursable expenses.
What is considered a TDA? A company can define a TDA for any length of time. These durations
range from three months to over three years. Regardless of the TDA’s length, the IRS rules do
not change, which is very important for the company and employee when covering expenses.
IRS Definition of a “Temporary Domestic Assignment”
IRS Revenue Ruling 93-86 (http://www.irs.gov/pub/irs-wd/0020055.pdf) states:
[I]f employment away from home in a single location is realistically expected to last (and does in
fact last) for 1 year or less, the employment is temporary in the absence of facts and
circumstances indicating otherwise. If employment away from home in a single location is
realistically expected to last for more than 1 year or there is no realistic expectation that the
employment will last for 1 year or less, the employment is indefinite, regardless of whether it
actually exceeds 1 year. If employment away from home in a single location initially is realistically
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expected to last for 1 year or less, but at some later date the employment is realistically expected
to exceed 1 year, that employment will be treated as temporary (in the absence of facts and
circumstances indicating otherwise) until the date that the taxpayer's realistic expectation
changes.
It is very important to provide the employee, at inception, a letter of assignment that details the
length and reason for the assignment. Whenever the intent or time period of the assignment
changes, this document must be updated with the reasoning. Otherwise, the IRS may conclude
that the original expectation was for more than one year or indefinite from inception, and thus
treat all expenses as taxable.
Location of “Base Home” and “Regular Place of Work” is Critical
In addition to tracking the assignment length, the employee must keep a home at the departure
location and must return to his/her home after the assignment is complete in order for certain
expenses to be considered non-taxable. Generally as explained in IRS publication 463, “tax
home” is not where the employee lives, but the location of his/her “regular or principal place of
work.” If the employee has no regular place of work, then “home” is his/her “regular place of
abode.” An employee who has neither a regular place of work or abode (e.g., some construction
workers) is an itinerant, and is never “away from home.” An employee who is working away from
the regular office has two places of work: the regular office and the current place of work. The
regular office will be treated as the employee’s “regular place of work” if the employee’s work in
the other place is temporary. But if the work in the other place is indefinite or permanent, even if
the employee has not moved there, the other place becomes the regular office and the employee
is not “away from home” on business when working there.
Typical Temporary Assignment Characteristics
Short Term Assignment
Long Term Assignment
An assignment in another location that is
An assignment in another location lasting
expected to last less than 365 days
longer than 12 months (but typically less
than 3 years)
Employee must return to his/her base
Employee returns to his/her base
home/regular place of work
home/regular place of work
Length of assignment must be defined as
less than one year upfront to ensure correct
tax treatment
Most expenses are not considered income
(taxable); although those that are taxable are
typically grossed-up
Length of assignment should be defined
upfront; if the length is unknown or indefinite
it is considered long-term
Expenses are considered income (taxable)
and typically grossed up
Short-Term Assignment Expenses
In order for travel expenses to be considered non-taxable, they must be ordinary and necessary,
incurred while away from home overnight, and incurred in pursuit of a trade or business.
Advances and/or reimbursements are not taxable if the employee accounts for the expenses
within a reasonable time and returns any excess funds from advances within a reasonable time.
A reasonable time is 60 days for accounting and 120 days for return of excess payment (often
due to a lump sum payment provided as an advance).
Travel expenses incurred during return trips to the home location from the temporary location are
non-taxable only if the primary purpose of the trip is business. There is one exception to this rule
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and that is if the cost of the trip home is less than the employee would have spent had he or she
remained at the temporary location. Otherwise, if the purpose of the trip is to visit family and
friends or take care of personal business, the expenses are taxable. The TDA policy should be
very clear on the taxability of these trips.
Long-Term Assignment Expenses
Generally, all expenses reimbursed or paid on the employee’s behalf for long-term assignments
(greater than 12 months) are taxable. Typically companies provide tax assistance (gross-up).
Tax Assistance (Gross-up) for Short and Long-Term Assignments
A majority of companies provide tax assistance (gross-up) for any expense considered taxable to
the employee during a TDA and will use the same tax assistance methodology as used for
relocation expenses.
State Issues
Generally, payment of wages to an employee on a TDA will be taxable in the assignment’s state,
and the company will be required to withhold for that state’s taxes—another important reason to
document an employee’s assignment location and length. Although an employee’s income when
working in another state is taxable (assuming there is a state tax), the state’s standards on when
tax withholding begins differ. Some states begin immediately, some have a time standard (30
days), an amount standard (more than $2,000), or a combination (either 30 days or $2,000,
whichever comes first). Withholding may also be required in the state the employee resides in,
although some states have reciprocal agreements that eliminate duplicate withholding. If the
state tax rules are met then the employee must file a return in the state of the temporary
assignment and his/her home state. The employee may be eligible for a home state tax credit for
taxes paid in another state, which may not always be subject to offset against other tax
obligations. If the home state has no income tax, or a low tax, paying taxes in the temporary
assignment’s state may significantly impact the employee’s tax return.
To Be Continued
Stand by for Temporary Domestic Assignments: Part 2, which will be published in the fall, and will
include a list of typical assignment expenses covered by companies for short and long-term
domestic assignments and outline those considered taxable.
During the policy consultation process, SIRVA may provide information about tax and legal issues. Please be aware that tax and/or
legal information is not the same as tax or legal advice. SIRVA and SIRVA employees cannot and will not give tax or legal advice and
SIRVA recommends that any tax and/or legal aspects of any policy be reviewed by your own tax and legal experts.
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The foregoing is intended as general information only. SIRVA suggests that decisions as to your specific situation should be made only after full
evaluation of your circumstances with your company leadership, tax and legal advisors, and HR personnel.
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