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There is nothing illegal - as long as your wages are above the minimum hourly limit and you are paid overtime according to your state law.All other issues are regulated by your labor contract - and your employer is not required to reimburse you for any job related expenses or using your car unless that will result your wages below the minimum.Moreover - any type of reimbursements either set as car allowance or based on mileage must be reported as your taxable wages unless made under an accountable reimbursement plan.
There are certain IRS requirements, but in simple words that means - you are required to report back how the money were used.
Whether the payer includes all reimbursements into gross income and you deduct your expenses on your tax return OR they exclude that amount based on conditions above - so you would not need to deduct these expenses - would be between you and your employer.
If additional amounts are INCLUDED into your pay - that pay increase - not reduction - at least formally.
So your W2 form will demonstrate higher wages.
As regarding reimbursements - that is a civil matter between you and your employer - if reimbursements clause is in your employment contract - you might have a case.
But otherwise - reimbursements are not subject of labor laws unless your wages fall below the minimum rate.
You still entitled for deductions - let me know and I help you with reporting if needed.
You may post another question specifically for possible labor contract violations if needed.
Let me know if you need any help with reporting.
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