Legality question about corporate cards
November 8, 2024 11:55 AM Subscribe
A friend's workplace is rolling out a new corporate card policy, and while they don't expect it to impact them, they are wondering if it would stand up to legal challenge.
People use corporate cards to pay for certain types of service, registrations for events, certain types of office supply, etc. These are not travel cards and are not used to cover business travel for the cardholder.
People being people, it has been difficult for accounting to get everyone to prepare their spending reports and submit receipts in a timely way. Next year they are rolling out a new policy, where if a cardholder buys something for the business but does not reconcile the report within sixty days, the expense will be taxed as if it was salary for the cardholder (the cardholder will still be expected to reconcile the expense and the purchased item will still belong to the business).
We were talking about this and felt like it seemed weird that you could, eg, purchase emergency toner for the printer, the toner belongs to the business and yet you are taxed for the value of the toner. Is this legal? If so, why?
My friend takes care of their card expenses promptly so this is sort of an abstract concern, but it still seems weird.
People use corporate cards to pay for certain types of service, registrations for events, certain types of office supply, etc. These are not travel cards and are not used to cover business travel for the cardholder.
People being people, it has been difficult for accounting to get everyone to prepare their spending reports and submit receipts in a timely way. Next year they are rolling out a new policy, where if a cardholder buys something for the business but does not reconcile the report within sixty days, the expense will be taxed as if it was salary for the cardholder (the cardholder will still be expected to reconcile the expense and the purchased item will still belong to the business).
We were talking about this and felt like it seemed weird that you could, eg, purchase emergency toner for the printer, the toner belongs to the business and yet you are taxed for the value of the toner. Is this legal? If so, why?
My friend takes care of their card expenses promptly so this is sort of an abstract concern, but it still seems weird.
My understanding is that this change (which we are also experiencing in my workplace) is due to recent increased IRS enforcement. Basically, if your employer gives you money, the default assumption is that it is compensation and therefore taxable. To prove to the IRS's satisfaction that an employee payment is NOT taxable, you have to meet certain criteria, and timeliness is one of them.
posted by Ausamor at 12:06 PM on November 8 [7 favorites]
posted by Ausamor at 12:06 PM on November 8 [7 favorites]
Note that under this IRS policy if you're just very late with your expense report, you won't actually be "taxed" for the business expenses — what will happen is that your income will be treated as higher by the amount of the expenses for the purposes of calculating withholding. If you eventually file your expense report your income at the end of year W-2 form will accurately reflect your real income, but have a slightly higher withholding than would otherwise occur. So at tax time you'd get a slightly larger refund (corresponding to the extra money withheld earlier in the year).
posted by RichardP at 12:40 PM on November 8 [2 favorites]
posted by RichardP at 12:40 PM on November 8 [2 favorites]
Is this legal?
I'm not a lawyer, this is not legal advice - probably yes, but whether it is or not is kinda academic.
I'm assuming your friend, by virtue of having a salary and a corporate card, is exempt from FLSA [1]. If so, your company can have more or less any policy for pay they want, provided it ends up with the person getting paid minimum $44K/year. Unless this policy resulted in them getting paid less than $44K, it'd probably be legal. If they ended up getting paid less than $44K/year, it's possible this might kick them into an FLSA non-exempt state, but that still doesn't necessarily mean its illegal - it just means they start to have to be paid for overtime and other FLSA requirements.
The reason I say it's academic is employers also can have policies employees must comply with. "File an expense report within 60 days" is a very reasonable policy. Employers can legally fire employees that violate their policies. Hence, if your friend disputes this, they may end up in a worse discussion - would they rather pay additional taxes, or rather be fired? Most folks tend to pick the first option.
[1] Having a salary doesn't mean someone is exempt from FLSA by itself, but it is common folks with salaries are.
posted by saeculorum at 2:01 PM on November 8
I'm not a lawyer, this is not legal advice - probably yes, but whether it is or not is kinda academic.
I'm assuming your friend, by virtue of having a salary and a corporate card, is exempt from FLSA [1]. If so, your company can have more or less any policy for pay they want, provided it ends up with the person getting paid minimum $44K/year. Unless this policy resulted in them getting paid less than $44K, it'd probably be legal. If they ended up getting paid less than $44K/year, it's possible this might kick them into an FLSA non-exempt state, but that still doesn't necessarily mean its illegal - it just means they start to have to be paid for overtime and other FLSA requirements.
The reason I say it's academic is employers also can have policies employees must comply with. "File an expense report within 60 days" is a very reasonable policy. Employers can legally fire employees that violate their policies. Hence, if your friend disputes this, they may end up in a worse discussion - would they rather pay additional taxes, or rather be fired? Most folks tend to pick the first option.
[1] Having a salary doesn't mean someone is exempt from FLSA by itself, but it is common folks with salaries are.
posted by saeculorum at 2:01 PM on November 8
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posted by goatdog at 11:59 AM on November 8 [1 favorite]