Employee has auto allowance that he receives 1099-misc "other Income" form for. $5000. Employer will not put in W-2. Employee has about $10000. worth of auto business expenses. Given the employer won't put it in W-2 I see two choices:
1 - Put 5000 on line 21 as other income and deduct $10,000 on 21062 - Put 5000 on Sch C and put enough mileage on that to reduce to 0 and the rest on 2106.
Any advice? Thanks
Since the $5,000 belongs in Boxes 1, 3 and 5 of the W-2, I recommend using Form 8919. That will put the $5,000 on line 7 where it belongs and the employee's portion of FICA/Medicare on line 58. The expenses go on the
2106, feeding Schedule A, where they belong.
Well, I don't think the employee should be saddled with having to try to correct his employer's mistake. This form of reimbursement is common enough throughout the USofA. why should employee be saddle with another 7.65% of the 5,000?
I very simply put everything on form 2106.
ChEAr$, Harlan Lunsford, EA n LA
It boils down to whether it's an accountable or nonaccountable plan. (Pubs
15 and 463) I assumed it was nonaccountable because that's what it sounded like to me. If it's nonaccountable it's taxable wages for income and employment taxes. (Pub 15)If it's an accountable plan then I agree, put all the expenses and the reimbursement on the 2106.
In either case it leaves us with the question of what to do about the
1099-MISC, which never should have been issued. My preference is to leave it off the return entirely, telling the IRS where it's accounted for when they inquire. I know most prefer putting it on line 21 and backing it out.
The fact that he gets an allowance of $5000 and a 1099-MISC tells you it is not an accountable plan. You are correct that this should have been reported as wages and 15.3% of employment taxes paid. This is probably not an employer mistake but just a way to avoid paying the employer's share of the employment taxes (7.65%). As I don't believe that filing the 8919 will ever cause the IRS to go after the other 7.65%, I don't see why the employee should be forced to fork over 7.5% when the employer gets a free ride. I agree with Harlan (who forgot to mention that you can't deduct anything on the 2106 unless you put the income on Line 21) that the employee should not pay 7.5%.
If the W-2 is incorrect, why not use Form 4852 (Substitute W-2) instead of Form 8919, and add the $5,000 to the wages, where it belongs? The IRS says to use Form 4852 if a W-2 is incorrect and the employer won't correct it.
The instructions for Form 8919 say to use it "if you were an employee but were treated as an independent contractor by your employer." But that's not the situation here. Using Form 8919 would effectively require the employee to file an SS-8, which isn't appropriate and would stir up trouble with the employer.
Bob Sandler
And I believe it will. Do you have anything other than a hunch to base it on? I don't.
But let's assume for the sake of discussion that they won't pursue the employer. If the employee pays the employee's share how is the employee worse off than the employee would have been had the employer done everything right?
I don't see it as the preparer's role to prepare a return based on fixing perceived inequities rather than the law.
The last time I looked the procedure for the 4852 still said to call the IRS and the IRS would prepare the 4852 and send it to you. It's always seemed to me like the 4852 was the solution to wihheld tax that wasn't included on a W-2.
That's one of the uses, but not the only one. In this case I'm suggesting using it because it's a way of:
Because the employer has already issued a W-2 there's no SS-8 determination needed.
But.... there is a line on the form 2106 for reimbursements received. To put that reimbursement from a form 1099-misc on line 21 increases AGI, which leads to .... (etc)
ChEAr$, Harlan Lunsford, EA n LA
HINT: Isn't there a line on form 2106 for reimbursements not reported as income? (That's a rhetorical question)
I agree with Alan on this one. If the money is on a
1099-MISC then the employer is admitting it is not an accountable plan so the $5,000 goes into income. It is not a reimbursement, if it was a reimbursement then it would not be on the 1099-MISC. The full deduction goes on Form 2106. Is it unfair? I will let the reader decide. Is it the law, yes.Drew Edmundson, CPA Cary, NC
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