Should I be concerned that my new employer has a pay structure that uses both biweekly wage checks and weekly reimbursement checks to equal my $20/hr?

[nikkijosh06]

The biweekly paychecks will be for a base salary of $11 per hour. Then, the weekly reimbursement stipends in the set amount of $360. Which equals out to the $20 an hour. They call the reimbursement a weekly housing and travel allowance. I just want to make sure that this is an okay practice before I get in too deep with this job. Its a great opportunity and will look great on a future resume, so I would like it to work out. At the same time, I am worried about the legality as I have never heard of this before.

[xmasbaby0]

You need to find out how the employer intends to report that "stipend" income.  Are they including it on the same W-2 along with your other hourly wage income or are they going to put that on a 1099NEC and report it to the IRS as "self-employment" income.  If they are doing that (which is sketchy) that means no tax would be withheld from that "extra" stipend amount and you will end up owing and paying tax on all of that---when you have "self-employment" income you pay all of the Social Security and Medicare amount yourself--15.3% of it will be owed as self-employment tax.   And you would also be subject to the ordinary  federal and state tax.   

In other words---if they pay you that "additional" $9/hour and treat it like self-employment income on a 1099NEC, you will pay all of the tax on that with nothing withheld for tax and no part of it paid by the employer.  Find out now how the employer plans to put  that income on tax documents.   If they are putting all the $20/hour income on a W-2 and withholding Social Security and Medicare and ordinary federal and state tax, that is different.  But you do not want a nasty surprise at tax time.

I hope another ( or several ) Champs weigh in on this one to share their thoughts as well.  @Opus 17  @rjs 

[nikkijosh06]

Thank you for your reply. I just sent an email over to them and asked for clarification. Hoping its all above board as it's such a good job. I appreciate your help.

[rjs]

@nikkijosh06 

Should you be concerned? Yes. I assume that the employer is going to do exactly what xmasbaby0 said is "sketchy." To put it more bluntly, they are cheating. What they say they will do is not legal. They are paying you $360/week as if it is not wages, in order to avoid paying payroll taxes and the employer's share of Social Security and Medicare taxes.

All payments from an employer to an employee are wages and are supposed to be included in the wages in box 1 of your W-2, no matter what they call it or what they say it's for. If you go along with this arrangement you will end up paying self-employment tax on the $360/week. That essentially means that you are paying both the employee's share and the employer's share of the Social Security and Medicare taxes.

There is a way to avoid paying the extra tax by reporting the income on your tax return as income that should have been included in your W-2. But that brings it to the attention of the IRS. If the IRS starts looking into it, the employer might get annoyed and fire you.

There is a way for an employer to reimburse an employee for legitimate business expenses without reporting the reimbursement as wages. That would involve you submitting an expense report with receipts for your actual business expenses. But it's pretty clear that that's not what's going on here. And "housing allowance" is not a normal business expense.

Note that the illegality here is on the part of the employer, not you. But it's definitely shady. And if they cheat on their taxes, what else do they cheat on?

Sorry to put a damper on what might otherwise be a great job.

[nikkijosh06]

Thank you. I sincerely appreciate your reply. This is the reason I posted on here, I wanted to gather more information from people who know more about this than I do. I have emailed the employer and asked for more information and clarification on if the reimbursement will show up on a W2 or not. 

[Hal_Al]

Expenses/reimbursement. 

If they pay you a set amount (an expense "allowance") without making you account for how you spend it, then they are supposed to include it as taxable income on your W-2, in box 1.  For tax purposes, that income is treated as regular wages and is taxable to you. 

If, on the other hand, they have an "accountable plan", wherein they only reimburse you for your actual expenses, then they do not include it on your W-2.  It is not taxable to you. 

[AmeliesUncle]

I wouldn't be worried about it.  But as the other comments have said, you should be aware of some things.

Is this a temporary job (expected to be one year or less) and away from your regular area/city of work/home?  If so, that $360 a week could be tax-free.

Even if that doesn't apply to you, but it is the kind of job that situation could apply to many of its employees, it seems reasonable for the employer to set it up the pay structure that way.

If it IS a temporary job and you are away from your regular area/city of work/home, congratulations on a good job opportunity and having an employer that is handling things in the perfect way.

If it is NOT a temporary job that is away from your regular area/city of work/home, then you need to be aware of some of the cautions that others mentioned.

• If they don't report it on your W-2:
  • You will need to fill out a special form on your tax return to pay the Social Security and Medicare tax.  You should be prepared for that extra amount owed on your tax return.
  • They likely will have withheld significantly less Federal and State income tax than they should have, which is going to significantly decrease your refund or cause you to owe quite a bit.  You should be prepared for that extra amount owed on your tax return.
  • Eventually (likely a few years), the IRS will contact your employer about it, and your employer may not be happy with you.  However, you seem to want this job as a resume builder, rather than a long-term job, so that may not be a concern.
• If they DO report it on your W-2, great, your employer is handling it correctly.