Paying Payroll taxes on Employer Expenses?

April 28, 2009 10:00 PM

I have a good friend who's getting screwed by his (soon to be former employer) re: expenses and payroll taxes. What's the best way to resolve this situation?

This is all pre-accountant/pre-lawyer information gathering.

Long story short, my friend is an office manager for a consulting firm that does a lot of entertaining. He pays for catering out of pocket, and then is reimbursed for it at each pay period.

So far no problem, but where it gets dicey is these reimbursed expenses are being reported on his paycheck as income, which has totally fucked him at tax time. We plan on going to an accountant, possibly a lawyer, but before we do I want to know what I'm talking about.

What are the various things we need to be wary of here. The consulting firm has a lot of shady business practices, and I don't think they'd react well (either feet dragging or outright hostility) to an employee asking them to correct this. They have more time and money for lawyers than we do. My gut says he should be able to go with an itemized deduction of the business expenses, but the employer collects all receipts. He has copies, but I know the IRS is big on originals.

Any advice no ways to smartly deal with this cluster fuck? Oh, and a preemptive "are you helping" to the "you should be happy to have a job in this economy" people. Just because times are tough is no reason we should let employers slap us around.

posted by anonymous to law & government (4 comments total)

Your friend should talk to the employer and ask them to straighten it out. It should not be a big deal for them. This is HR/tax 101 stuff. Next step would be to talk to a tax specialist in order to make sure his personal taxes are in order, as well as possibly the IRS and state labor board.

Really, though, your friend, as this company's office manager, is someone this company should really want to do right by regarding taxes, considering how informed he is about their business practices.

Oh, and he should stop paying out of pocket for the company's expenses until this is straightened out.
posted by zippy at 10:22 PM on April 28

I don't know why the employer would want to call these payroll, since they would have to pay payroll taxes on them if they were. It's not going to save them any money (that I know of, anyway)
posted by delmoi at 10:28 PM on April 28

I'm not an accountant. The Employee Business Expenses form from the IRS should be of some help to your friend

I know that gas mileage reimbursements that are over a certain percentage are taxable. However, most companies I know issue separate checks for reimbursements.

Whatever has been taxed as income should be deducted as an expense up to certain limit. If your friend's expenses are over that limit, s/he needs to confront the employer to discuss alternate arrangements.

You should check with an accountant, I'm not certain that lawyers are necessary in this case.
posted by ttyn at 10:28 PM on April 28

There is no benefit to the employer in reporting this as income paid to him. It's all deductible to them, as income paid out or as business expense. They should get him a credit card to use for this. Meanwhile, if he must continue this rotten practice, he should consider a 2nd credit card, to make it easier to track.
posted by theora55 at 10:16 AM on April 29