Tax Matters

How temporary was your temporary job?

By David Katzman

If you’ve been living and working away from home on a temporary job assignment, you may be wondering if you can deduct related expenses on your federal income tax return. The answer is yes—and no—depending on some specific Internal Revenue Service (IRS) definitions.
The IRS makes a distinction between temporary and indefinite job assignments. If your job is temporary, your tax “home” remains the same. If your job is indefinite, your tax home changes to your new location. The difference is significant from a tax perspective.

How do you determine which definition applies to your situation? If your job assignment is realistically expected to last longer than one year—even if it does not actually last that long—it is classified by the IRS as indefinite; and your personal living expenses will not be deductible. If your job assignment is realistically expected to last less than one year, and it actually does last less than a year, it is classified as temporary.

This leaves the taxpayer with the burden of proving which definition applies. If you are working on this type of job assignment, you may want to accumulate documentation that would help establish your position. For example, you may want to save any memos reflecting the nature of the assignment or even get a written statement from your employer explicitly identifying expectations for the assignment.

The difference can be very subtle. For example, the IRS illustrates it this way: A construction worker takes an out-of-area job expected to last eight months. The job lasts10 months, which is less than a year, so the assignment is temporary. On the other hand, if the construction worker takes an assignment expected to last 18 months, the assignment is considered indefinite even if the work ends in less than a year.

What expenses are deductible?

If your job assignment is classified as indefinite, any living expenses you receive from your employer must be included as income, even if your employer classifies them as travel allowances. You may be able to deduct relocation costs, however, since the IRS considers your tax home to be the new location.
If your job assignment qualifies as temporary, you can deduct all related expenses, if your employer does not reimburse them. Essentially, these expenses are treated exactly as any other, less lengthy, business travel. This means you can deduct the cost—as long as it is ordinary and necessary—of lodging, transportation, meals and other qualifying incidentals, such as laundry or dry cleaning. All are subject to the rules applying to business travel expenses.
What happens when you visit your tax home on weekends or for vacation? You cannot deduct expenses incurred while at home. You can deduct the travel costs incurred to return home, however, up to the amount it would have cost to stay at your temporary location. If you maintained your living accommodations at the temporary location, then you can deduct just the amount you would have spent for meals.