Today TaxMama hears from Doug in the TaxQuips Forum who is arguing with his work buddies. “We are a group of field technicians that work entirely out of our home and have no local office to report to. We drive directly from our home to a customer site, and the visit usually is completed that day but can run into several visits over the course of a few days or weeks.” They get reimbursed at the rate of $500 per month and 23 cents per mile. How are they supposed to report the reimbursements and deductions?
Dear Doug,
Let me clear this up for you. There are two kinds of reimbursement programs under the tax code:
1) Accountable plans – where you submit an expense report and get paid only based on receipts or mileage logs. Those reimbursements are not added to wages and are not taxed. You do not need to report them on your tax return in any way.
2) Nonaccountable plans – where you get a chunk of money and can do whatever you want with the money. Those reimbursements get added to wages and are fully taxed, just like wages, including for FICA and Medicare. To offset the extra income, you must use Form 2106 to deduct the expenses yourself. You end up losing some or all of the deductions due to the 2% floor on Miscellaneous itemized deductions – and the need to itemize.
Your case is extremely unusual. You are getting paid both. So the reporting requirement changes. In your case, when you fill out Form 2106, to report your miles at 50 cents per mile, you will show the reimbursements you have received for the MILEAGE on line 7. Since you have already been paid for part (23 cents) of those miles, you don’t just get to deduct the full mileage rate, without reducing your deduction for the reimbursements you have received. You will still get the benefit of a deduction worth 27 cents per mile. (Or you have the option of deducting your actual vehicle expenses rather than the mileage rate, if that gives you a better deduction.)
You do not have to deduct the $500 because that is already included in your income. However, you may have other expenses you can use on Form 2106 to reduce the impact of the $500.
[Folks: for another interesting twist on how to reduce or eliminate the taxes on that $500 per month, read the rest of the answer in the TaxQuips Forum. ]
And remember, you can find answers to all kinds of questions about employee business expenses and other tax issues, free. Where? Where else? At www.TaxMama.com.
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And remember, you can find answers to all kinds of questions about employee business expenses and other tax issues, free. Where? Where else? At www.TaxMama.com.
[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
Please post all Comments and Replies in the new TaxQuips Forum .
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