Employee expenses (in town)

[JanMacUsa]

My contractor husband has recently hired one employee. Normally they work out of state and the customers pick up the travel and meal expenses. The employee has been working within 17 miles of his home and our home office. My husband has issued a credit card to the employee for gas and meals and allows him to use it when in town, then my husband pays the credit card charges the employee made. (If he had been out of town the customer would reimburse on an expense report)

It's my contention, as the bookkeeper, that the lunches and gasoline are not tax deductible for employer or employee, and if the employee paid out of pocket and was reimbursed by my husband, it would be taxable income for the employee and a payroll expense for the employer. Right or wrong??

How is this situation handled in compliance with IRS rules?

Thanks in advance.

 

[M2 Worldwide]

[/QUOTE]It's my contention, as the bookkeeper, that the lunches and gasoline are not tax deductible for employer or employee, and if the employee paid out of pocket and was reimbursed by my husband, it would be taxable income for the employee and a payroll expense for the employer. Right or wrong??[/QUOTE]

I believe the if the employee is paying for there gas and it is work related that the employee can right that off at the end of the year. Lunches I am unsure of I know that if you are taking clients out to lunch that would fall into a business expense which I believe you can also right off. I would suggest giving your employee a prepaid debit card and that way you or your husband could load the card with a pre-determined amount and you would also be able to keep track of his expenses. With the prepaid debit card you can also load his paycheck onto the card, saving you some time and money on printing checks. If Google M2WWsolutions you can learn more about the card or call 1-855-873-1480.

 

[KRHoffmanCo]

My contractor husband has recently hired one employee. Normally they work out of state and the customers pick up the travel and meal expenses. The employee has been working within 17 miles of his home and our home office. My husband has issued a credit card to the employee for gas and meals and allows him to use it when in town, then my husband pays the credit card charges the employee made. (If he had been out of town the customer would reimburse on an expense report)

It's my contention, as the bookkeeper, that the lunches and gasoline are not tax deductible for employer or employee, and if the employee paid out of pocket and was reimbursed by my husband, it would be taxable income for the employee and a payroll expense for the employer. Right or wrong??

How is this situation handled in compliance with IRS rules?

Thanks in advance.

You are partially correct. The employee does not meet the IRS test. Anything that is charged to the credit card based on your information is not a tax deductible business expense to the company. It is a taxable income to the employee and will be added to box one of his W-2.

Kenneth Hoffman, EA
Tax Counsel to Business, Professionals and Select Individuals
954-591-8290