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The Ins and Outs of Per Diems for Oil & Gas Landmen

By Jamie Ward, CPA

There is great freedom in being an independent oil and gas landman, but for the unprepared, that independence can cut both ways. Whether they realize it or not, every independent landman is a small business unto themselves - and that means if they don’t look after their own interests, no one else is going to. The better landmen understand the small details of their compensation, the less likely they are to run afoul of the IRS.

In addition to their daily rate, many landmen receive a per diem payment for meals. Per diem rates are set by the IRS and updated each year. Rates vary by location but typically range between $75 and $150.

Not all per diems are the same

Per diem for the self-employed is treated differently by the IRS than per diem for employees. For the self-employed, per diem can only be used to cover meal costs. The per diem rate that combines meal and lodging costs is only available to regular employees.

On the plus side, as long as the landman keeps good records - the key to all tax success - the cost of meals for which the landman received per diem are 100% deductible because the meals happened for the convenience of the company paying the landman.

How Does Your Business Measure Up Against Others in Your Industry?

Do the math

The rise of “brokers” within the oil and gas exploration industry has led to some questionable practices. Staffing agencies sometimes offer per diem reimbursement to local workers who aren’t incurring travel as a way to circumvent paying overtime, unemployment insurance, workers compensation, social security and other payroll taxes.

Many workers prefer this arrangement because they have less tax liability and think they’re coming out ahead.  The problem is that not only can they be losing out on wages they would be making in overtime - these lost wages also lower eventual unemployment and social security benefits.

Moreover, when the IRS eventually catches up the company engaging in this practice, it recalculates the wages of everyone affected, which will almost certainly result in an unexpected tax liability for the workers who thought they were making out.

Surprised by how complicated something as simple as per diems for oil and gas landmen can be?  You’re not alone. We serve oil and gas clients from Oklahoma, Texas, and throughout the entire country. Give us a call so we can talk about how to protect your interests.

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