» IRS: Consider all tool reimbursement plans taxable

IRS: Consider all tool reimbursement plans taxable

September 3, 2008 by Carol Katarsky
Posted in: Best practices, Fringe benefits, Hiring & training staff, Internal controls, Special report, T&E, Tax compliance

The latest in IRS’ war against tax-avoiding tool reimbursement plans means more work for you — and more money out of your company’s pocket. As you know, IRS has been taking a careful second look at tool and equipment reimbursement plans under its new enforcement program. And so far, IRS says every one it’s looked at has failed the “accountable plan” test. As a result, it expects those payments to be included in employees’ income — and to have appropriate employment taxes withheld from the amounts reimbursed.

For all the details, see IRS’ latest coordinated issue paper on the topic. 

Most of the plans are failing the accountability test for one of two reasons either they:

  1. risk reimbursing more than the employees actually spend on tools, or
  2. don’t require employees to substantiate either the actual cost, or the business purpose for the tools.

For more info, check out the companies most likely to be targeted for an audit and the steps IRS requires your company to take to stay in compliance.

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