Should I claim my employee allowance as income on my taxes?

Should I claim my employee allowance as income on my taxes?

by Elizabeth W. Kidd, CPA | Oct 09, 2017

My employer allows me $500 a month on my company credit card to spend on personal fuel, meals, or other items that might be justified as a work expense. Do I need to claim this as income on my taxes? This has been going on for several years, and I've never claimed it before. Do I need to amend previous returns?

Payments to an employee for actual business expenses are made under plans that either require the employee to substantiate the business expenses (an accountable plan) or that do not require the employee to do so (a nonaccountable plan).

Payments under an accountable plan are not included in your income and are not subject to tax. Payments under a nonaccountable plan are treated as wages, and employers are required to include the amount on your W-2. You can deduct employee business expenses as itemized deductions when filing your income tax return, subject to the appropriate limitations on expenses. You would bear the burden of substantiating the business purpose of those expenses. 

If you submit reports for the expenses charged to the corporate card, the plan is accountable and no further action is required. Any items that are not qualified business expenses must either be reimbursed by you or included in compensation on your W-2.

If there is no reporting, the employer is required to include the amounts paid to you in your W-2 wages. You should determine if they have been included. If they have not been, you should request that your employer correct your W-2 or, in the alternative, file Form 4852, Substitute for Form W-2, with your return to include amounts not reported.

There is no statutory requirement to file an amended return to correct errors or omissions. However, depending on the amounts, it may be prudent to do so.

Your tax professional can assist you in analyzing the specific facts and circumstances of your situation.
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Answered by: Elizabeth W. Kidd, CPA, is a retired accounting instructor in Erie, Pa.
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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