Reimbursement for gas/cellphone

[babblefiesta]

I am a w2 employee. My employer automatically gives me a separate $200 check every month for auto expenses as well as $50 check for phone expenses. This is not part of my direct deposit. I dont have to show the employer any receipts. How does this work for taxes? Can I use it for anything or must it be specifically for the car?

[Critter-3]

Does he issue you  a 1099-NEC for this amount?

[xmasbaby0]

W-2 employees cannot deduct anything for job-related expenses on a federal tax return.   Your state laws might be different.   Ask your employer if the $200/month is being included on your W-2----it is very likely being added to your W-2.   You will simply enter your W-2 exactly as it appears when you prepare your tax return.  You are not going to enter anything on your federal  tax return about car expenses, mileage, or phone bills for your W-2 job

[xmasbaby0]

@babblefiesta   Please reply with an answer to the question asked by @Critter-3, though.   If you will receive a 1099NEC or 1099Misc for the gas/phone money then we have different information to give you regarding your next tax return.

[babblefiesta]

Thanks. I just started this new job last month. I will ask him to clarify if this income will be reported on my w2 or included in a separate 1099

[TomD8]

For the detailed IRS rules on this subject, see the chapters on "Meals and Lodging" and "Transportation Expenses" in this IRS handbook:

https://www.irs.gov/pub/irs-pdf/p5137.pdf

[rjs]

@babblefiesta 

The additional $250 per month that your employer is paying you is just additional pay, the same as if he gave you a $250/month raise. It doesn't matter what he calls it or why he says he is giving it to you. All payments from your employer are treated as wages. The payments should be included in the payroll and in the wages on your W-2. If your employer is not doing that, he's doing it wrong.

As xmasbaby0 said, if the payments are included in your W-2, as they should be, you do not have to do anything special. Just enter your W-2 when you prepare your tax return. If the payments are not included in your W-2, whether or not you get a 1099 for them, post back here when you are ready to prepare your 2022 tax return and we will tell you how to report the income in TurboTax, in spite of the incorrect handling by the employer.

The monthly payments are not expense reimbursements because you are not reporting your actual business expenses. You are receiving the payments under what the IRS calls a "nonaccountable plan," because you do not account for your actual expenses. There is a discussion of accountable plans and nonaccountable plans on pages 4 and 5 of the IRS publication that TomD8 referenced above. Note the following statement in the description of a nonaccountable plan on page 5.

"Payments, including advances, reimbursements, allowances and so on, made under a nonaccountable plan are taxable wages subject to all withholding when paid or constructively received by an employee."

What the IRS publication says later about specific types of expenses is irrelevant, because the payments are being made under a nonaccountable plan.

Since you are a W-2 employee, under current tax law you cannot claim a tax deduction for any job-related business expenses of any kind. This provision of the law remains in effect at least through 2025.

[Carl]

As an addendum:

I wonder if your employer is aware of what an "accountable reimbursement plan" is for job related expenses. You may want to inquire about that also.

With an accountable plan, you are required to provide receipts for those work related expenses, and the employer reimburses you for the expenses you can prove with receipts. That way, the employer gets to deduct the expenses as a business expense, and the amount does not have to be reported to you by the employer, or included on your W-2.

[Opus 17]

If you receive funds for expenses and you are not required to account for those expenses, they must be included in your taxable income. They must be included in your W-2 wages, and the reimbursements are subject to Social Security tax withholding, Medicare tax withholding, and income tax withholding. Your employer is not allowed to issue a 1099-NEC for these reimbursements. Everything of value that you receive from your employer as compensation for your work must be included in your W-2 wages. 

If your employer is not reporting the reimbursements to the federal government as wages, then your employer is cheating the government. If your employer reports the reimbursement as taxable income on a 1099, your employer is cheating you.

Your employer can reimburse you for legitimate expenses tax free if you are required to prove your expenses. Your employer may give you an advance on your expenses, as long as that advance is reconciled in a timely manner with proof of your actual expenses.

[rjs]

"Your employer may give you an advance on your expenses, as long as that advance is reconciled in a timely manner with proof of your actual expenses" . . . and you promptly pay back any advance in excess of your documented actual expenses.

[rjs]

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@babblefiesta wrote:

Can I use it for anything or must it be specifically for the car?

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No one has responded directly to this part of your question. Since the additional monthly payments that you get are considered additional wages, you can use the money for anything you want, just like your regular pay. Since your employer does not have an accountable plan, the payments are not expense reimbursements. Even though your employer says they're for car expenses, they actually have nothing to do with your car expenses. They're just additional pay that you can use for whatever you want.