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Tax Treatment of Housing and other Expenses for Interns vs. Short-term Domestic Assignees
While preparing for intern season, we were asked recently to explain why housing and other expenses, like traveling to and from the job location, are taxable for interns and not necessarily taxable for employees on domestic short-term assignments when they are both only temporary work situations. With the busy summer intern season upon us, we thought it might be a good time to revisit the subject.
The tax treatment of housing and other benefits for interns versus short-term domestic assignees are actually very different due to the specific tax rules and regulations that apply to each group. Here's a general explanation of why there are differences in tax treatment:
Interns
Interns are typically considered employees, even if they are temporary or part-time. As employees, any compensation or benefits they receive from their employer, including housing and travel, are generally considered taxable income.
Short-Term Domestic Assignees
Employees on short-term domestic assignments may be deemed to be on a temporary duty assignment away from their tax home. The IRS allows employers to provide tax-free housing, travel, and certain other expenses as a business expense, provided certain conditions are met:
- The employer must expect the assignment to last for less than one year.
- The minute an employer determines the assignment is going to extend longer than a year, the reimbursed expenses from that point forward become a taxable benefit to the employee.
- The employee must maintain a tax home at a regular place of business or employment.
- The temporary assignment must be away from the tax home, generally requiring the employee to work in a different location for a temporary period.
The Crucial Difference: Tax Home
According to Mark Tirpak, Managing Director with Global Tax Network, the major difference between the two is their “tax home”. Interns will presumably not be incurring accommodation costs in a place that is away from their “home” – i.e. principal place of employment – as they will not have a principal place of employment (i.e. tax home) other than the location where they are undertaking the internship. Their tax home is the location of the internship, so away from home rules applicable for assignees do not apply for interns.
There are conditions, however, where the value of housing could be excluded from an intern’s gross income if the following three requirements are met:
- The employee is required to accept such housing as a term and condition of employment; and
- The housing is located on the business premises of the employer; and employer-provided
- The housing is furnished for the convenience of the employer.
Unless all 3 of the above requirements are met, the employer-provided housing is taxable.
Please reach out to your NEI representative if you need support with your intern or assignment programs, or with assistance sourcing a tax firm. The tax treatment of housing and other benefits can be complex and may depend on various factors, including the specific terms of the assignment, the tax laws of the country or jurisdiction in question, and any applicable tax treaties or agreements. Therefore, it's always advisable to consult with your tax firm to understand the tax implications of housing and other benefits for interns in your specific situation.
The above article is provided for informational purposes only. Please consult your tax, legal, or accounting advisors before making any decisions or transactions.
Tax Treatment of Housing and other Expenses for Interns vs. Short-term Domestic Assignees
While preparing for intern season, we were asked recently to explain why housing and other expenses, like traveling to and from the job location, are taxable for interns and not necessarily taxable for employees on domestic short-term assignments when they are both only temporary work situations. With the busy summer intern season upon us, we thought it might be a good time to revisit the subject.
The tax treatment of housing and other benefits for interns versus short-term domestic assignees are actually very different due to the specific tax rules and regulations that apply to each group. Here's a general explanation of why there are differences in tax treatment:
Interns
Interns are typically considered employees, even if they are temporary or part-time. As employees, any compensation or benefits they receive from their employer, including housing and travel, are generally considered taxable income.
Short-Term Domestic Assignees
Employees on short-term domestic assignments may be deemed to be on a temporary duty assignment away from their tax home. The IRS allows employers to provide tax-free housing, travel, and certain other expenses as a business expense, provided certain conditions are met:
- The employer must expect the assignment to last for less than one year.
- The minute an employer determines the assignment is going to extend longer than a year, the reimbursed expenses from that point forward become a taxable benefit to the employee.
- The employee must maintain a tax home at a regular place of business or employment.
- The temporary assignment must be away from the tax home, generally requiring the employee to work in a different location for a temporary period.
The Crucial Difference: Tax Home
According to Mark Tirpak, Managing Director with Global Tax Network, the major difference between the two is their “tax home”. Interns will presumably not be incurring accommodation costs in a place that is away from their “home” – i.e. principal place of employment – as they will not have a principal place of employment (i.e. tax home) other than the location where they are undertaking the internship. Their tax home is the location of the internship, so away from home rules applicable for assignees do not apply for interns.
There are conditions, however, where the value of housing could be excluded from an intern’s gross income if the following three requirements are met:
- The employee is required to accept such housing as a term and condition of employment; and
- The housing is located on the business premises of the employer; and employer-provided
- The housing is furnished for the convenience of the employer.
Unless all 3 of the above requirements are met, the employer-provided housing is taxable.
Please reach out to your NEI representative if you need support with your intern or assignment programs, or with assistance sourcing a tax firm. The tax treatment of housing and other benefits can be complex and may depend on various factors, including the specific terms of the assignment, the tax laws of the country or jurisdiction in question, and any applicable tax treaties or agreements. Therefore, it's always advisable to consult with your tax firm to understand the tax implications of housing and other benefits for interns in your specific situation.
The above article is provided for informational purposes only. Please consult your tax, legal, or accounting advisors before making any decisions or transactions.
