Per diem, allowances and the tax on them: how the layover money is treated in the UK, Germany, the US and the Gulf, and the mistakes crew make
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#1 Fourteen years and I have watched crew get the tax on allowances wrong in every direction, so here is how it works in the jurisdictions I know, in general terms, with the standard warning that I am a purser and not an accountant and you should check yours.
The UK
Flying allowances and per diems paid by UK airlines are, in most cases, structured so that the part that covers genuine expenses is not taxed and any part above that is. The airlines have agreements with HMRC on the scale rates. What crew get wrong: assuming all of it is tax free (it is not, if it exceeds the agreed rates), and forgetting that the allowances count as income for some purposes (mortgage applications, benefits) even where they are not taxed.
Germany
The Verpflegungsmehraufwand system: a tax free daily allowance for time away from home, set by the tax office by country and by hours away, paid by the airline within those limits. Above the limit it is taxable. What crew get wrong: not claiming the difference on their tax return when the airline pays less than the tax free maximum, which is a real amount of money left on the table every year.
The US
Per diem paid hourly, and the tax treatment depends on whether it is under an accountable plan and within the federal rates. Most airline per diem is structured to be non taxable within the rates. What crew get wrong: the commuting crew who think their commute costs are deductible (they are not, mostly), and the crew who do not track the days away for state tax purposes when they live in one state and are based in another.
The Gulf
No income tax in the UAE or Qatar, so the allowances are simply not taxed. What crew get wrong: the Americans, who must still file with the IRS and claim the exclusion, as Joe wrote; the Brits, who must establish non residence properly or HMRC will have questions; and everyone, who assumes tax free in Dubai means tax free at home when they go back with savings, which depends on the home country's rules.
The universal mistakes
Not keeping the payslips. Not knowing the difference between the taxed and untaxed lines. Not telling the mortgage lender that the allowances are income (they will not count them anyway, at most lenders, and crew are shocked that a 3,000 a month income is assessed as 1,100 basic). And not asking a colleague who has been through it before the tax return is due.
The one piece of advice
In your first year, pay an accountant who knows aviation for one return. Copy what they did for the rest of your career. It is the best 200 you will spend.
Corrections from the accountants among us welcome.
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#2 Lufthansa, and the Verpflegungsmehraufwand claim on the return is the thing every German crew member learns in year two from an older colleague and never from the airline. It is real money. Claim it.
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#3 American at Emirates, and my tax thread and Paul's paragraph agree: file, claim the exclusion, FBAR. The 'tax free in Dubai does not mean tax free at home' point is the one that catches Americans and Brits alike.
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#4 UK, and the mortgage lender assessing a 3,000 a month income as 1,100 basic is the single most frustrating experience of my adult life and Paul has described it exactly. Get the payslips for two years and find a broker who knows crew.
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#5 @leahgatwick a broker who knows crew is the second best 200 you will spend, after the accountant. Some lenders do understand. Most do not. The broker knows which.
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#6 Delta, JFK based, living in New Jersey, and the state tax on days away is the thing that took me a year and an accountant to understand. The one return with a professional in year one is the right advice for every country.
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#7 Norwegian, and the Scandinavian version is the traktamente, tax free within the state's rates, the same shape as Germany, and the same mistake: not claiming the difference. Every system has the same hole and the older colleague is the one who tells you.