Tax code does not specify a maximum hourly rate of tax-free benefits allowable for temporary living expenses. Therefore, you are left to evaluate contract proposals based on other less-than-objective factors, ranging from industry trends, to injury benefits, to audit risk.

Options to consider

Some staffing agencies have transitioned to Tax-Advantaged Programs that limit tax-free benefits to housing, presumably to reduce risk, while other companies present a higher percentage of tax-free benefits. If you are eligible to deduct living expenses while working temporarily away from your tax home, and you elect to participate in a Tax-Advantaged Program, benefits may be paid tax-free as a dollar-for-dollar reimbursement, in kind (for example, via tax-free housing), or as a tax-free per diem (lodging and/or meals).

The facts

While tempting, receiving more of your income tax-free can pose several serious drawbacks. For a start, you may jeopardize your tax home status. Additionally, all of your income-dependent benefits are reduced with increased tax-free income, including short-term benefits, such as disabil-ity and unemployment, and long-term benefits, like Social Security and Medicare. And last, but certainly not least, one of the audit triggers for IRS and tax states is low income in relation to a person's occupation and where he or she works. Keeping your taxable income comparable to that of your permanent, taxable peers will lessen this audit risk.

The last word

When considering the amount you should take in tax-free benefits, remember: It boils down to a very personal decision, based on age and risk aversion.

The preceding discussion is general in nature, and should not be considered advice for any individual tax situation. You should consult with your personal tax planning professional for specific guidance relating to your unique circumstances.