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Can an employer reimburse employees for uniforms and add…

can an employer reimburse employees...
can an employer reimburse employees for uniforms and add this reimbursement susceptible to ss and medicare for about $125 a month?
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Answered in 5 minutes by:
3/24/2018
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,630
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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An employer is able to reimburse employees under an accountable plan for actual costs incurred. The employer would add the cost to the W2 wages which is taxed by Social Security and Medicare.

___

The employee would then deduct the costs on Schedule A as an itemized deduction subject to the 2% Adjusted Gross income floor.

Please let me know if this has answered your question or if you have any additional questions.

When you have no further questions a positive rating of 5 stars is much appreciated.

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Customer reply replied 3 months ago
I thought an accountable plan was when the employer receives receipts/invoice from employer for actual expenses and then the employer can reimburse for those expenses without having to include these amounts as taxable for SS and Med (my understanding from reading)
I was also under the understanding that a employer that does not receive written documentation (accountable plan), etc for reimbursements then has to tax the employees' reimbursement through W-2 (ss and med)
Customer reply replied 3 months ago
receives receipts from employee

Please give me one moment to double check

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Customer reply replied 3 months ago
Ok. Thanks.

If your employer reimbursed you or gave you an advance or allowance for your employee business expenses that's treated as paid under an accountable plan, the payment shouldn't appear as income on your Form W-2.pdf, Wage and Tax Statement. You don't include the payment in your income, and you may not deduct any of the reimbursed amounts.

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules:

  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 your employer's reimbursement arrangement doesn't meet all three requirements, it's a nonaccountable plan and the payments you receive should be included in the wages shown on your Form W-2.pdf. You must report the payments as income, and you must complete Form 2106.pdf, Employee Business Expenses

___

Reporting your expenses under a nonaccountable plan.

Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.

Below is the link to IRS Publication 463 for your convenience.

https://www.irs.gov/publications/p463#en_US_2017_publink100034148

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Therefore, you are correct.

Accountable plans do not include in income the amount reimbursed by the employer. ---The excess amount is subject to income tax withholding and social security and Medicare taxes

___

The non accountable plans, the employer does include the amount in the W2, which is subject to SS and medicare tax.

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Customer reply replied 3 months ago
if i give my employee a $125 a month reimbursement and don't receive any accounting from them then I must include this amount as a wage item line and the $125 would be susceptible to ss, medicare, and income tax?
Customer reply replied 3 months ago
just want to be clear that I am correct in my thought process :)

Exactly.

Because in your scenario you are not receiving any documentation of the expenses, which would make the plan non accountable and the payment subject to SS, medicare and of course income tax

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You are correct in your thought process!!

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Customer reply replied 3 months ago
perfect! thanks again!

Thank you. I appreciate your patients.

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,630
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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