Who pays the tax on reimbursed mileage to a 1099 independent contractor?

[accounting1]

We paid our office manager as an independent contractor, reimbursing her for mileage.  These reimbursements were added to her 1099 and she is disputing that she is responsible for paying the taxes on this income.  If she is reimbursed by the company for mileage as an independent contractor, should these be on her 1099?

[ChristinaS · Accepted solution]

Yes, in general, any money you pay an independent contractor is their income. Since an independent contractor is deemed to have their own business, that expense is theirs to deduct. To have the reimbursement not hit their tax reporting first, they must have provided substantial documentation, and the payer must then make a full accounting of it on the business' return.

If the mileage is a valid business expense and has not passed this test, the person deducts the mileage against the 1099-MISC income. So, they are not really paying taxes on it regardless.

More importantly, is your office manager truly an independent contractor and not an employee?

[accounting1]

Hi!  Thank you for your response!  Truly, the office manager should have been an employee, but same as the other individuals for the 2016 tax year, she was paid in full each pay cycle, no taxes nor any other expenses withheld.  She is also the only of the 3 that requested reimbursement for mileage associated with doing her job.  As she was also the bookkeeper/accountant, she could have and should have set up a payroll service or at least used the Quickbooks payroll to pay the required taxes .  In all fairness, she opted to be paid tax free via 1099.  I don't think she realized how much tax liability she was going to be burdened with though ...

[ChristinaS]

Yes, if someone doesn't really have their own business... there aren't truly enough benefits of paying the extra taxes as a 1099er. Not enough expenses to make that worth it.
As an employee, an accountable plan would have worked if this was done through payroll/ formally. Your business deducts the valid mileage (i.e. not commuting, but actual biz mileage) and the income never hits the W2. With a quasi employee (your business is not her client), this accountable thing is just too sullied.
Yes, live and learn... if your business is reimbursing her for valid expenses, why on earth would a person choose to be an independent contractor for that? (lets keep that rhetorical)