For about 20 years, the Pennsylvania Department of Revenue has ticked me off on behalf of my clients.
Schedule UE, for "Unreimbursed Expenses" of an employee, ALREADY documents such expenses, also provides Line I (that's i, not 1) for any reimbursements from the employer, does the subtraction, then generates the total allowed offset to taxable income (Line J) which posts to Form PA-40 Line 1b.
Here's what make me angry:
When PA sends my clients a Notice saying they want either a Form Rev-757 from the employer or Form Rev-775 from the employee, either of which supposedly to "verify" what was already stated on Sch.UE, it is duplication of paperwork, delays the taxpayer's refund, and -what really rips me- otherwise ILLEGALLY disallows the UE claim. (Title 61 of the PA Code Section 101.6(d) allows, but does not require, the PA Dept. of Revenue to require a Rev.757, but if the Dept. does so require, they are to ask the employer, not the employee to do their dirty work for them.)
There is NO PA LAW that puts the "burden of proof" on the taxpayer. Rather, the Commonwealth of PA must prove that the taxpayer lied. To demand that a taxpayer be responsible for providing their employer's verification (Rev.757) or their own redundant report of what they already reported (Rev.775), is the same as subjecting the taxpayer to self-incrimination, which is contrary to the Fifth Amendment to the U.S. Constitution and against Article I Section 9 of the PA Constitution!
Furthermore, three things allow the taxpayer to report Unreimbursed Expenses spent on working for their employer:
1. PA's Schedule UE's line-item instructions, generally, say what is allowed to be claimed;
2. The PA-UE INSTRUCTIONS (publication PA-40 UE IN 08-20) for Line 6 (see: Instructions, page 3), mileage expenses claimable, state specifically, "Enter the total business miles and multiply by the federal mileage allowance to calculate the allowable business mileage expense."
What? Use the FEDERAL MILEAGE RATE! So where does PA get off denying the WHOLE expense (56¢/Mile) if the taxpayer is reimbursed in part (say: 36¢/Mile)? What about the 20¢/Mile difference? See Line I's Instructions for Penna.'s supposed answer.
3. Line I's instructions (see the PA-UE Instructions, page 4) DISallow ANY expense IF there is ANY reimbursement for THAT expense, even though not fully reimbursed, but only partly reimbursed, by the employer. BUT!...
61Pa.Code§101.6 paragraphs (c)(5) and (c)(7) and (c)(10) say:
"(c) Compensation does not mean or include any of the following: ... (5) Payments made by employers to employes to reimburse actual expenses allowable as an ordinary, reasonable and necessary business expense. ...(7) The value of meals and lodging furnished for the convenience of an employer or casual employer does not constitute compensation. ...(10) Federally excludable benefits provided for the convenience of the employer." (Federally excludable benefits would be found on Fed. Form 2106.)
Note that this section of PA Law does nothing more than state that reimbursements are not to go onto an employee's W2 box 1 (Wages) income; it says nothing about whether or not such reimbursements themselves are supposed to be reduced to zero along with disallowance of their corresponding employee expense, that is next, and is the crux of this discussion. (Saving the best for last!)
An additional reference in Law is 61Pa.Code§101.1, Definitions, sv. "Income", from which income...
"(ii) A deduction is not allowed for expenses, whether paid or incurred for the production or collection of income or for the management, conservation or maintenance of property, except:
(A) Unreimbursed employe business expenses."
The double-negatives of "legalese" notwithstanding, this says that Unreimbursed Expenses ARE allowed.
The corresponding definition in Title 72 of the Pennsylvania Statutes' Section 7301 Paragraph (d) (sv "Compensation") sub-paragraph (v) [72P.S.§7301(d)(v)] states:
"The term “compensation” shall not mean or include: ... (v) payments to reimburse actual expenses."
And, NOWHERE in 72P.S.§7303(a)(1) "Compensation" is ANY Unreimbursed Expense offset to Income DISallowed.
In NEITHER of these two aspects of PA Law, the Code and its Statutes, is there ANY limitation on Unreimbursed Expenses.
The ABSENCE of CLEAR Law that would LIMIT an employee's claim of Unreimbursed Expenses is NOT justification for the PA Department of Revenue to impose any limit whatsoever.
In fact, there is NO LAW in Pennsylvania that either:
(a) allows PA to delay issuing a Refund on the basis of the State's taking its sweet ole time to research or validate (e.g., via awaiting the return of a Rev.757 from an employer) a taxpayer's claim of UE expenses; or
(b) restrict or limit in any way the application of the UE amount claimed that would offset Compensation (on Form PA-40 Line 1a).
My conclusion is that Pennsylvania has, for about twenty years, acted illegally toward taxpayers claiming Unreimbursed Expenses as an employee of their employer. I, for one tax preparer, will NOT allow PA to swipe money it is not legally allowed!
