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AccountingNerd8
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Joined: 13 Jan 2009
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Posted: 09 Jan 2010 at 11:57 \| IP Logged

To be included in gross income:
Employee expenses paid or reimbursed by the employer unless the employee has to account to the employer for these expenses and they would qualify as deductible business expenses for employee.

What are some examples of employee expenses? And why wouldn't the employee have to account to the employer for those expenses?

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cpa0123
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Posted: 09 Jan 2010 at 14:17 \| IP Logged

Employee expenses are expenses incurred by an employee in connection with his/her job. It could be travel & conveyance (other than normal commute from home to office), entertainment, work uniform, union dues, books & supplies for business, etc.

There are 2 types of plans - accountable & non-accountable plans:

Accountable plan is where employee has to show proper evidence to the employer for the expenses & is supposed to return any excess received within a reasonable time. This is neither taxed as an income nor allowed to be deducted as an expense by IRS

However, non-accountable plan does not require the employee to be accountable to the employer. An employee receives a sum & can use this sum to spend on whatsoever business related expense he could incur. IRS requires such money received to be included in taxable income in W2 as wages and also allows the employee to claim itemized deduction for the expenses by filling a particular form. This deduction is subject to 2% AGI floor. If the employee opts for standard deduction, he loses this deduction.

I hope i haven't confused you ;)

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AccountingNerd8
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Posted: 09 Jan 2010 at 19:55 \| IP Logged

Thanks!

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