As a Certified QuickBooks ProAdvisor and Quicken trainer in Seattle, I have an S corporation client who has decided that the standard IRS 2010 mileage reimbursement rate of 50 cents isn’t sufficient to cover the wear and tear on an older (1998) personal vehicle (averages 18 mpg) of a key employee and officer and wants to pay $1.00 a mile instead.
Employees are required to maintain and submit a mileage sheet to be reimbursed under the company’s accountable plan each month. Failure to do so means no reimbursement. The accountable plan was adopted by the board of directors and noted in the corporate minutes.
I explained that anything paid to the employee or officer in excess of the standard IRS mileage rate will be considered taxable wages and will need to be reported on the employees W-2. However, I am unsure which box would be used as this is the first time I have encountered this situation. My client’s employee is okay with paying taxes on the excess as both they and the employer win.
However, because federal income taxes isn’t my specialty (I only set up, review, and train small business owners and individuals in Intuit’s software and it isn’t mentioned in Intuit’s Payroll web site), I am wondering if these taxable wages are subject to payroll taxes or are they considered “fringe benefits” such as a Section 125 Medical Plan. My thought is because they are paid under an accountable plan, they are not. However, some research I have done says otherwise.
If they are not subject to payroll taxes, it might be an interesting way to pay someone more money and avoid the combined 15.3% payroll taxes for both parties. Or if you are an S corporation officer to pay yourself more money in mileage reimbursements instead of dividends and profits even though you would still be subject to being taxed on the income by the federal and state governments.
Any thoughts and if there is agreement, which box to use on the W-2 for the excess. I’m thinking Box 1 which is where one adds the Section 125 portion but doesn’t have an impact on Box 2. Does it make any difference what type of corporate structure (C or S) is involved? Obviously, a sole proprietorship could not do this.
