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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29930
Experience:  Taxes, Immigration, Labor Relations
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My company was giving me $400 a month un taxed as a vehicle

Customer Question

My company was giving me $400 a month un taxed as a vehicle allowance as well as paying for my gas. I use my vehicle as a service tech. I average around 100 miles a day from tje time i leave my house until i return home. They are now going to roll that money into my regular salary and I will be taxed on it. They also are requiring me to keep a mileage log that they will use as a write off. I was also told that they will use some calculation using the IRS mileage to calculate how much I am spending a month and if I go over the allotted amount I will be 1099 at the end of each year. Is this legal and should they be paying for the up keep of my vehicle? This is so confusing to me and I'm not sure what to do.
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Reimbursements may be in any way and any amount as the employer sets.

However - the tax treatment may be different because some reimbursements are not reported as taxable compensation and some reimbursements must be reported as taxable wages for the employee.

Expert:  Lev replied 1 year ago.


.In order to qualify as an accountable plan, your reimbursement or allowance arrangement must require that your employees meet all three of the following rules:

1. There must be a business connection to the expenditure. This means that the expense must be a deductible business expense incurred in connection with services performed as an employee. If not reimbursed by the employer, the expense would be deductible by the employee on his/her 1040 income tax return.

2. There must be adequate accounting by the recipient within a reasonable period of time. This means that your employees must verify the date, time, place, amount and the business purpose of the expenses. Receipts are required unless the reimbursement is made under a per Diem Plan.

3. Excess reimbursements or advances must be returned within a reasonable period of time. Reasonable depends upon facts and circumstances.


So - when reimbursements are made BEFORE expenses are paid - the person is required to report all expenses and provide all receipts - including actual tickets. When not provided - the excess should be returned.

That up to your employer to decide whether to have an accountable reimbursement plan OR to include reimbursements into your wages.

If they do include into your wages - you may deduct car expenses on your tax return.

Does that answer your question?