Employer Reimbursement via Accountable Reimbursement Plan
Here is a plan for tax savings - a tax deduction for the employer while not income to the employee. If you are an employee for a company and they are paying you an “allowance”, you are paying taxes on this amount via your W-2 form in addition to your employer paying payroll taxes by matching your FICA and Medicare on those amounts. Why not have your employer reimburse you through an accountable reimbursement plan? If you do, your employer will save payroll taxes and you will not report the income.
This works if you are a sole proprietor, partnership, LLC, S-corp, or C-corp.
As an employer, you can start saving payroll taxes now.
Employee Business Expenses
If you itemize deductions and you are an employee, you may be able to deduct certain work-related expenses. The IRS has put together the following facts to help you determine which expenses may be deducted as an employee business expense.
Expenses that qualify for an itemized deduction include:
Business travel away from home Business use of car Business meals and entertainment Travel Use of your home Education Supplies Tools Miscellaneous expenses You must keep records to prove the business expenses you deduct.
For general information on recordkeeping, see IRS Publication 552.
However, if your employer reimburses you under an accountable plan, you do not include the payments in your gross income, and you may not deduct any of the reimbursed amounts. An accountable plan must meet three requirements:
1) You must have paid or incurred expenses that are deductible while performing services as an employee. 2) You must adequately account to your employer for these expenses within a reasonable time period, and 3) You must return any excess reimbursement or allowance within a reasonable time period.
If the plan under which you are reimbursed by your employer is nonaccountable, the payments you receive should be included in the wages shown on your Form W-2. You must report the income and itemize your deductions to deduct these expenses.