If you’ve spent any time in the touring world, you know that per diems are a fundamental part of life on the road. They are the daily allowances provided to cover expenses like meals and incidental expenses while traveling for work. But how do these payments work in practice, and how does the way tours handle them line up with tax regulations?
Let’s dive into what really happens with per diems on tour. We’ll explore the gap between industry norms and IRS rules and explain how most tours manage it all. You’ll get a clear picture of why things are done the way they are, so there are no surprises down the line
What Actually Happens on Tour
When you’re out on the road, consistency and simplicity are key. Tour managers are juggling countless logistics, and crew members need a reliable structure they can count on. This is where the practical application of per diems comes into play.
In practice, most tours:
- Pay the same flat per diem, no matter the city. Whether you’re in New York City or a smaller town in the Midwest, the daily rate you receive is often the same. This simplifies budgeting and ensures everyone knows what to expect.
- Continue per diems on off days. Days off are a necessary part of any tour schedule. Even though you might not be traveling or working, you still have daily expenses. For this reason, tours typically continue paying per diems on these days.
- Treat per diems as part of the expected tour structure. Per diems aren’t just a bonus; they are a core component of compensation and budgeting. Crew members expect them, and tour managers build them into the financial plan from the very beginning.
This approach is standard across the industry. It provides a predictable and straightforward system for everyone involved. No one is trying to do anything unusual here; it’s simply the way the touring world operates efficiently.
Where the IRS Draws the Line
So, if this is standard practice, where does the issue arise? The complication isn’t about how tours operate. It’s about how the IRS defines a non-taxable reimbursement. Understanding this distinction is crucial for both artists and crew.
From a tax standpoint, per diems are intended to be reimbursements for specific expenses incurred while traveling for business. For a per diem to be considered non-taxable, it must cover:
- Meals and Incidentals: These are the costs for food, drinks, and small miscellaneous expenses you have while away.
- While Traveling: The expenses must be incurred when you are on the road for work.
- Away from a Tax Home: A tax home is generally the city or area where your main place of business is located, regardless of where your family home is.
The IRS sets specific maximum rates for meals and incidentals, which vary by location. When a tour’s per diem practices don’t align perfectly with these rules, the payments can be viewed differently by tax authorities.
For example, when per diems are:
- Paid on non-travel days, or
- Paid at a flat rate that exceeds the government-set limit for a particular city,
The IRS may view part or all of that payment as taxable income. This happens even if everyone in the touring industry considers the payment a normal, legitimate per diem.
Making Sense of the Rules
Let’s break this down a bit more. The way the touring industry uses per diems for operational ease can create a gray area when it comes to taxes.
- Paying per diems on off days is common, but it weakens the tax-free argument. The IRS sees per diems as reimbursement for business travel days. Paying them on a day off could lead to that portion being classified as taxable income because you aren’t technically “working.”
- Flat per diems are normal, but can exceed IRS limits. A flat rate of, say, $75 per day might be well within the IRS limit for an expensive city like San Francisco. However, in a lower-cost city, the official limit might be much lower. The amount paid over that limit could be considered taxable income.
- None of this is “wrong,” but it changes the paperwork. The key takeaway is that these industry practices aren’t illegal or incorrect. They simply change how the payments should be treated for tax purposes. The difference between a non-taxable reimbursement and taxable income is a matter of reporting.
How Tours Usually Handle the Gap
Tour managers and Business Managers are well aware of this potential discrepancy. They have developed several common strategies to manage the gap between practical tour operations and strict tax rules. The goal is always to maintain simplicity while staying compliant.
Most tours choose one of these approaches:
- Accept that some per diems may be taxable. Some tours acknowledge that a portion of the per diems paid will likely be considered taxable income. They work with their accountants to report these amounts correctly on year-end tax forms, like a W-2 or 1099.
- Keep per diems flat for simplicity. Many tours decide the operational benefit of a flat per diem rate outweighs the complexity of tracking different city rates. They stick with a consistent payout and then work with their finance team to address the tax treatment at the end of the year.
- Use IRS rates as an internal reference. Some organizations use the official IRS per diem rates as a guide for their internal accounting, even if they pay a different flat rate to the crew. This helps them determine which portion of the payment should be treated as a non-taxable reimbursement and which should be recorded as taxable compensation.
- Document policies clearly. The best practice is to have a clear, written tour policy that explains how per diems are paid and how they will be treated for tax purposes. This ensures everyone, from the artist to the crew, has the same expectations and there are no financial surprises.
- Per diem means no receipts required. If you receive a per diem, you typically don’t turn in receipts for those expenses. Company policy usually follows an either/or approach: you are either reimbursed by turning in receipts for actual expenses, or you receive a per diem instead, which eliminates the need to track and submit receipts. This simplifies expense management for both crew and management.
Final Thoughts : It’s About Understanding, Not Opposing
At the end of the day, it’s helpful to see per diems through two different lenses. For the tour, they are an operational tool designed for simplicity, consistency, and fairness. For the IRS, they are a tax concept with specific rules and limits.
The goal isn’t to fight one system or the other. Instead, it’s about understanding where they overlap and where they differ. Touring norms prioritize what works on the road, while tax rules prioritize documentation and strict definitions. By recognizing both perspectives, artists, crew, and managers can work together to ensure payments are handled smoothly and everyone is prepared when it comes time to file their taxes. Clear communication and good record-keeping are your best friends in making sure everything adds up correctly.
