Due to relocation expenses included as part of my gross wages, I greatly overpaid on Social Security and Medicare taxes, how can I request a refund on FICA taxes?

[tk01kj]

I am a college student and during the summer I interned for an employer who included relocation expenses (airfare, lodging costs, and tax assistance) as part of my gross wages (on top of my monthly salary) on my W-2. I was able to deduct these relocation expenses from my gross wages as miscellaneous job expenses under Schedule A, but this deduction only refunded me my federal and state taxes withheld. This deduction did not change my FICA pre-tax wages, so the FICA taxes withheld from me are significantly more than what should've been withheld.

According to IRS Publication 15 page 38, an accountable job expense may not be taxable and is deducted from FICA wages before FICA taxes are calculated, therefore all accountable expenses will constitute a refund of my FICA taxes withheld.

I know the airfare is an accountable expense, I bought the airfare tickets, showed the employer the receipt, and the employer reimbursed me exactly what was shown on the receipt.

However, I'm not sure about the company-provided lodging expenses. The daily rates of the lodging were communicated with me ahead of time, I had to verify to them that I will pay part of my salary towards these lodging expenses, so I believe these expenses were accountable. Correct me if I'm mistaken.

I'm also not sure about the relocation tax assistance. As I mentioned earlier, I deducted these expenses in job expenses under Schedule A. However, would these count as taxes paid, legal fees paid when filing taxes, or other forms of deduction instead of Schedule A job expenses? Are these considered accountable?

In the case that my employer DOES NOT refund me my FICA taxes, I will need to file an 843 Request for Abatement to the IRS. What evidence would I need to provide on the 843 other than communications with my employer? Do I need evidence that the lodging expenses and tax assistance were in fact accountable? 

[Opus 17]

You can't get a refund.

If the employer reimburses your expenses under an accountable plan, then the reimbursement is not included in your gross wages for income or employment tax purposes.  However, your employer did not use an accountable plan.  

With an accountable expense plan, the employer only reimburses you for expenses that you prove to the employer with receipts.  The burden is on the employer to maintain the paper trail and prove, if audited, that only allowable expenses were reimbursed tax-free.

Your employer simply grossed up your wages to cover the expenses.  This places the burden on you to claim any deduction, and to maintain the paper trail to prove, if audited, that the expenses were allowable deductions.  It also limits your deduction by the 2% rule, and it means that you still pay employment tax on the gross wages.

[tk01kj]

Well, I guess one point is I believe my employer had mistakenly thought all expenses are nonaccountable. As I mentioned in my post, I had receipts for the airfare ticket, so that is accountable.

[TaxGuyBill]

In order to be deductible (and therefore qualify for an Accountable Plan), that trip would need to be a temporary job away from your "Tax Home" (main area of work).

Unless your employer had proof that your "Tax Home" was elsewhere, they could not use an Accountable Plan (which is usually used when you already work for an employer and they temporarily send you to another city to work).

As such, I think they did it correctly (a Non-accountable Plan), and there is nothing you can do.

[Opus 17]

The narrow issue is that the employer did not use the accountable plan rules to reimburse you.  It doesn't really matter why.  If you can persuade them to use accountable plan rules, it will mean a huge paperwork mess for them--amended W-2, amended form 941, etc.  And if you can't persuade them to change, there is no way to force them, and no way to get any additional refund.  The 2% itemized deduction is what you get.

The broader issue is whether you are even allowed a deduction at all.  You can deduct travel and lodging expenses when you are traveling away from your tax home for temporary work.  It's an interesting question, whether a college student has a tax home at all, and where it is.  Your tax home might be your parent's home, or it might be college.  If you don't work during term, you might have no tax home at all, meaning the expenses are not qualified under an accountable plan and also not allowable as an itemized deduction.  I'm not going to investigate this for you; I suggest you leave things as they are and not submit any further questionable claims to the IRS that might prompt them to review the entire situation.

[tk01kj]

So what you're saying is, if my airfare ticket I paid for it, they reimbursed me after I give them the receipt, this is still unaccountable? But I'm doing the exact same as what someone would in an accountable plan?

[tk01kj]

Well my point is, I thought if I pay for an airfare ticket, the company reimburses me based on the receipt, then it isn't taxable?

[TaxGuyBill]

The employer is treating it non-accountable, and treating it as taxable wages.  There is nothing you can do about that.