Workamping and Taxes: Tax Implications of Trading Labor for RV Campsites
Bartering your labor for free RV camping is a very popular strategy for RVers looking for creative ways to make ends meet while living on the road.
Websites, various organic communities, and for-profit businesses have sprung up to provide how-to tips and facilitate the matching of “work-campers” with the RV parks and campgrounds offering these bartered opportunities. No doubt about it, the work-camping ecosystem is thriving and growing.
There’s no surprise that the IRS has carved out a position regarding tax implications for bartered transactions. Accordingly, one of the more frequently asked questions we deal with is “Should RVers claim income and pay taxes on the value of the free campsites that are provided as compensation for their services?”
The IRS doesn’t address the work-camping scenario in specific terms, but we can draw a reasonable conclusion from how they weigh in on the concept of employer-provided housing—also referred to as “Lodging on the business premises” in the IRS regulations. First let’s lay some groundwork and then we’ll return to this concept.
Taxable Income
The IRS casts a wide net when defining what is taxable income. I recall my professor’s sage advice in my first college class on federal income taxes. He advised my classmates and me that when dealing with the IRS it is best to assume all income is taxable unless you can find specific guidance (from the IRS) that states otherwise.
Consistent with my professor’s admonition, the IRS defines business income as follows, “Except as otherwise provided in the Internal Revenue Code, gross income includes all income from whatever source derived.” (1) For individual taxpayers, the IRS mandates, “You must include in gross income everything you receive in payment for personal services.” (2)
Fringe Benefits
The IRS further states that taxable income includes, “other forms of compensation such as fringe benefits.” (2) Fringe benefits are defined as, “a form of pay for the performance of services…. For example, you provide an employee with a fringe benefit when you allow the employee to use a business vehicle to commute to and from work.” (3)
Compensation in the form of a taxable fringe benefit is included on Form W2 (subject to income tax and FICA tax withholding for employer-employee situations) or on Form 1099-MISC for independent contractors (subject to income tax and self-employment tax paid by the contractor).
Bartering
The IRS states, “Bartering is an exchange of property or services.” (2) As a general rule, the IRS requires both parties in a barter arrangement to claim as taxable income the fair market value (FMV) of products and services received.
Consider, for example, a mechanic who repairs a painter’s truck in exchange for having his shop painted, or a lawyer who provides legal services for a restaurant client in exchange for free meals. IRS rules dictate that such arrangements create taxable income for both parties even though no cash changes hands.
Having explored how the IRS defines taxable income, fringe benefits and barter transactions, it appears work-camping arrangements constitute a taxable barter. Case closed? Not so fast.
Lodging Provided On Business Premises
Thankfully, the IRS grants an exception to the taxable barter rule that is advantageous for work-campers and thus brings us back to the concept of “Lodging provided on the business premises.” Even though the IRS defines employer-provided lodging as a taxable fringe benefit, it does allow taxpayers to exclude this benefit from taxable income if all three of the following tests are met. (3)
- Employer-provided lodging must be furnished on the business premises. In other words, for the work-camper, the campsite must be on-site at the RV park or campground where you are providing services.
- Employer-provided lodging must be furnished for the employer’s convenience. The IRS states that there must be “a substantial business reason” why the on-site arrangement is necessary for the employer and “depends on all the facts and circumstances”. A simple written statement that the lodging is furnished for the convenience of the employer is not sufficient, a legitimate business reason must be provided. For example, requiring work-campers to live in the RV park or campground because they must be available at all times of the day or night would satisfy the test. Also, a work-camper is in a better position to serve paying customers because they are “eating their own dog food” so to speak, personally experiencing what it’s like to live on the premises and provide a level of internal quality control.
- The employer-provided lodging must be a required condition of employment. For the RVer, living on-site must be a condition to getting the job and being able to effectively perform the job’s duties.
If any of the above three tests are NOT met, the IRS will consider your “free” campsite to be part of a taxable barter transaction and reportable as income just as if you had received cash.
Note also, if the employer allows work-campers to choose to receive cash compensation instead of the free campsite, then the campsite, if chosen, is NOT excluded from taxable income. If a choice is offered, then by definition the employer-provided lodging is no longer a “required condition”. However, if you receive cash in addition to a free campsite (for example, if you work extra hours) you are still allowed to exclude the value of the free campsite from income as long as all three tests are met.
Workamping and Taxes: Tips and Warnings
TIP: It is very important to get the employer to put these conditions in writing, so you have proper documentation in case of an IRS audit.
FREE TEMPLATE: Email freetemplate@quest-cpa.com and I’ll email you a reply that includes a template (Word doc and PDF versions) of a letter work-campers can use to document the three-pronged test. All you need to do is print and obtain the signature from an authorized representative (manager or owner) of the RV park or campground.
BEWARE: If you receive a W2 or 1099 after providing services for what you thought was a tax-free barter arrangement, the IRS will expect you to claim the W2/1099 income on your tax return. If such a situation occurs, contact the employer to correct or cancel the W2/1099 before filing your return, otherwise you’ll be on the hook to pay income tax on the value of the free campsite.
Good News
Work-campers can rest assured that there is precedent for legitimately excluding from taxable income the value of free campsites that are traded for labor. However, don’t cut corners and skip the important step of obtaining a signed document from your employer showing the three tests are met. Paper trails are your friend!
Footnotes:
- Instructions for Form 1120 (2018), U.S. Corporation Income Tax Return, https://www.irs.gov/instructions/i1120.
- IRS Publication 525 (2018), Taxable and Nontaxable Income, https://www.irs.gov/publications/p525.
- IRS Publication 15-B (2019), Employer’s Tax Guide to Fringe Benefits, https://www.irs.gov/publications/p15b.
DISCLAIMER: The information and materials we share in this article are intended for reference only. As the information is designed solely to provide guidance to the readers, it is not intended to be a substitute for someone seeking personalized professional advice based on specific factual situations. Therefore, we strongly encourage you to seek the advice of a professional to help you with your specific needs.
Author
Tim Ewing - Certified Public Accountant (CPA)
Tim began the full-time RV life in 2014 and works full-time from the road providing profitability and growth advisory services to business owners. Tim is also a CPA who specializes in helping self-employed RVers unload their bookkeeping burdens and avoid IRS headaches. You can reach Tim at timewing@quest-cpa.com or 757-771-2557.
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Does the same advice hold true for workcampers who volunteer (no cash paid) in exchange for a free campsite? Examples: camp hosting in a state park or on federal lands? What about volunteer camphosting at a not-for-profit land trust?
Hi Mary,
Thank you for responding to my article.
Yes, the same applies to volunteer services provided…if free lodging (campsites) are provided to volunteers there is no obligation to report the value of the lodging as taxable income as long as the three-pronged test is met.
Best regards,
Tim.
Thank you so much for this article. We have camp hosted at a state park for the last two summers and wondered about this issue. I have already forwarded it to the State Park staff! One question, we are hearing that some State Parks are issuing 1099’s to camp hosts. Given my understanding is that most host jobs meet the three exceptions, my guess is that the State wants to collect tax on the value. So folks need to consider individual States and their rules? I guess so!!!
What about being paid and given a reduced lot rent? Would not be staying here if working did not cover the lot rent and it is a condition of staying on property to work camp here.
Hi Laura,
Thank you for reading and responding to my article.
Campgrounds and RV Parks may issue a 1099 simply as a means to cover their tail. The IRS assesses penalties if an employer fails to issue a 1099 when they were legally obligated to do so. Therefore, many employers issue a 1099 just in case…there is no penalty for issuing a 1099 when one wasn’t legally required. Unfortunately, it is very hard to get out of paying income tax on 1099 income but a taxpayer can report their income correctly (as in their eyes) and attach an explanation to their tax return explaining why the 1099 income is bogus.
However, by far the better course of action is to educate your employer before the 1099 is issued and prevent it from occurring in the first place. Or, if you receive an incorrect 1099, contact the employer and request that they issue a corrected 1099. From an employer standpoint, issuing a corrected 1099 is a pain in the neck, so better to try and prevent the 1099 from occurring to begin with.
If you have a specific concern or 1099 situation you are dealing with, feel free to contact me and I’ll help you resolve it. 757-771-2557 or timewing@quest-cpa.com.
Hi Laura,
Thank you for reading and responding to my article.
Campgrounds and RV Parks may issue a 1099 simply as a means to cover their tail. The IRS assesses penalties if an employer fails to issue a 1099 when they were legally obligated to do so. Therefore, many employers issue a 1099 just in case…there is no penalty for issuing a 1099 when one wasn’t legally required. Unfortunately, it is very hard to get out of paying income tax on 1099 income but a taxpayer can report their income correctly (as in their eyes) and attach an explanation to their tax return explaining why the 1099 income is bogus.
However, by far the better course of action is to educate your employer before the 1099 is issued and prevent it from occurring in the first place. Or, if you receive an incorrect 1099, contact the employer and request that they issue a corrected 1099. From an employer standpoint, issuing a corrected 1099 is a pain in the neck, so better to try and prevent the 1099 from occurring to begin with.
If you have a specific concern or 1099 situation you are dealing with, feel free to contact me and I’ll help you resolve it. 757-771-2557 or timewing@quest-cpa.com.
Hi Ray,
The portion that is paid (cash or check) for your services should rightly be included on a W2 for employees and 1099 for contractors. The portion that is traded for free lot rent should not be included on the W2 or 1099 as long as the three-pronged test has been met.
Tim.
What about on the employers side? If all the criteria are met as stated above…that staying on the premises is required as a condition of employment, and you barter free RV space in exchange for work, the employee doesn’t have to pay taxes on the income…but can the employer deduct what it is costing them? ie: the rent that space would normally rent for if it were booked by a paying customer and the added cost of the utilities?
Great question! We’ll tag Tim and ensure he sees this so he can reply.
Unfortunately, the employer/campground-owner is not able to deduct the equivalent ‘cost’ of the ‘lost rent’ that it might otherwise have realized had the space been rented to a paying customer. However, the employer can deduct hard costs such as utilities and related costs to maintain the site that is being used by the work-camper…’hard costs’ meaning out of pocket costs that are paid for by the employer/campground owner. For example, if the space normally rents for $500 per month and is provided free to the work-camper. The work-camper does not claim the $500 income and the employer is not able to claim a $500 deduction. However, if the employer pays $250 in water and electricity for that site (and is not reimbursed by the work-camper), the $250 is a tax-deductible business expense for the employer.
Another way to think of this from the employer’s perspective. If the employer hired the work-camper and paid them $500 per month for services and the work-camper paid for their RV space at the going rate of $500 per month. The employer has $500 of income and $500 in expense…essentially, a break-even proposition (we’ll ignore payroll taxes, the hassles of red tape, etc, to keep this example simple). Alternatively, in the barter situation, the employer does not have the $500 rent income or the $500 contractor/employee expense…still a break-even situation. So, the work-camper barter arrangement doesn’t change the economics for the employer but it does save headache of having to put the work-camper on payroll (or send a 1099 at year-end) and avoid a lot of red tape that comes with hiring employees or contractors.
Thanks for your question!
Excellent…thank you so much for the response!