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Expense Reporting Reimbursements
Reimbursements If the type of Then the employer
reimbursement, or other
for Employees expense allowance is reports on And the employee
under: Form W-2: reports on Form 2106:*
An accountable plan with:
Reimbursement not requested. When you have a right Actual expense No amount. No amount.
to reimbursement for expenses related to your status as reimbursement with
an employee but fail to claim reimbursement, the ex- adequate accounting
penses are not deductible since they are not considered made and excess
returned.
necessary expenses.
Actual expense The excess amount as No amount.
Court Case: The taxpayer’s job involved extensive trav- reimbursement with wages in box 1, box 3,
eling in a two-state area. His employer had a policy un- adequate accounting and box 5.
and return of excess both
der which employees were eligible for reimbursement required but excess not
of all types of nonvehicle business expenses. The tax- returned.
payer did not submit any expenses for reimbursement Per diem or mileage No amount. No amount.
from his employer. Instead, he deducted the expenses allowance up to the
federal rate with adequate
as unreimbursed business expenses on his tax return. accounting made and
The court noted that it was not necessary for the tax- excess returned.
payer to remain unreimbursed for the expenses. To the Per diem or mileage The excess amount as No amount.
extent the expenses could have been reimbursed, the allowance up to the wages in box 1, box 3,
federal rate with adequate and box 5. The amount
court disallowed the taxpayers claimed deductions. accounting and return of up to the federal rate
(Stidham, T.C. Summary 2012-61) excess both required but is reported in box 12
excess not returned. but not in box 1.
Per diem or mileage The excess amount as The amount that can
Nonaccountable Plan allowance exceeds the wages in box 1, box 3, be substantiated as
federal rate with adequate and box 5. The amount a business deduction
Any form of reimbursement that does not meet the accounting made up to up to the federal rate reported in box 12, if
the federal rate only and
expenses in excess of the
is reported in box 12
accountable plan rules is a nonaccountable plan. All excess not returned. but not reported in federal rate are claimed.
amounts paid, or treated as paid under a nonaccount- box 1.
able plan are reported as wages on Form W-2. The pay- A nonaccountable plan with:
ments are subject to income tax withholding, Social Se- Either adequate The entire amount as The amount that can
curity, Medicare, and federal unemployment taxes. accounting or return wages in box 1, box 3, be substantiated as a
and box 5.
of excess, or both, not
business deduction.
required by plan.
Paying Expenses of an Employer No reimbursement plan: The entire amount as The amount that can
wages in box 1, box 3, be substantiated as a
and box 5. business deduction.
If the expense paid by you is that of the employer and
not yours, the expense might not be deductible. This * Only Armed Forces reservists, qualified performing artists, fee-basis state or
local government officials, and employees with impairment-related work ex-
could be the case where you are both the sharehold- penses may file Form 2106.
er and employee of your corporation. You may pay a
corporate expense, such as office rent, out of personal
funds when the corporate checkbook is low on funds.
Since the expense is a liability of the corporation and Contact Us
not yours, the expense is not deductible by you because There are many events that occur during the year that can affect
it is not an ordinary and necessary business expense. your tax situation. Preparation of your tax return involves sum-
marizing transactions and events that occurred during the prior
year. In most situations, treatment is firmly established at the
time the transaction occurs. However, negative tax effects can
be avoided by proper planning. Please contact us in advance
if you have questions about the tax effects of a transaction or
event, including the following:
• Pension or IRA distributions. • Retirement.
• Significant change in income or • Notice from IRS or other
deductions. revenue department.
• Job change. • Divorce or separation.
This brochure contains general information for taxpayers and • Marriage. • Self-employment.
should not be relied upon as the only source of authority. • Attainment of age 59½ or 70½. • Charitable contributions
Taxpayers should seek professional tax advice for more information. • Sale or purchase of a business. of property in excess of
• Sale or purchase of a residence $5,000.
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