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Do you work for this company as a regular employee for a set wage? Do they issue you a W-2 form at the end of the year to report your earnings?
Hello again cstsoap,
One more question please. What box number on the 1099 form did they report this in?
Thank you for the clarification, and I am glad to came here for your answer, because you cannot report this on a 1099 form. The amount that you paid to this employee for a car allowance MUST be included in his taxable wages that are reported on his W-2 form. It does not matter that you paid him with a separate check from payroll.
When you pay an employee for business expenses under a non-accountable plan, those expenses are included as part of his taxable wages. The company must pay their share of SS and Medicare taxes on those wages and also withhhold those taxes from the employee.
Please refer to page 3 of the following instructions for the 1099 form under the section entitled "Employee Business Expense Reimbursements".
You will need to have your payroll department add these payments to his taxable wages for the year and report them on his W-2 form.
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Thank you cstsoap