Jon wrote:

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....

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No. It would be commuting mileage, not deductible to you,
so taxable when paid to you.

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I have an offer from a potential employer for a 2-3 year
contract engineering position that is approximately 40 miles
from my home. The pay is an hourly rate subject to overtime
pay in excess of 40 hours. The pay rate is substantial, but
no employee benefits are provided. While I expect a tax
deduction for med insurance and costs, I will not have the
tax benefits of a 401k until the second year. Meanwhile,
they've offered me another option to reduce my tax liability
that I am uncomfortable with:

1) They will pay 80 miles [at] $.30/mile or $24/day as 'tax free'
compensation for travel/transportation/mileage expense. (This $24/day
allowance also reduces my hourly rate by $3/hour and my overtime rate
by $4.50/hour). Supposedly my taxable income is reduced by $6000!!

-- or --

2) The $3/hour is applied directly to my hourly pay rates without tax
free compensation.

My first instinct is to go for the cash and let the tax
issue resolve itself.

Is option (1) legit? Does the IRS permit employers to
reimburse employees on a tax free basis? Does this scenario
reduce my taxable income $6000? They've also noted that
this is only available for (1) year after which the $3/hour
would be reapplied to increase my hourly wage. I've never
heard of such an arrangement. Is there any advice available
out there?

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