Q:

Subject: Employee Fuel Allowances

Hello Kerry,

 

I am working at a client’s office today.  All of his employees drive in from out of town.  He has asked if it would be a good idea for him to provide his staff with fuel allowances.  If so could he cut them a vendor check instead of including it in there payroll and would this be a good write off for his S-Corp by deducting it as employee fuel allowance?       

 

Thanks for your input.

A:

The ability to do what you are proposing - give tax free auto allowances in lieu of taxable wages - became illegal decades ago. 

There are some tax free commuting expenses that employers can provide; such as parking and mass transit passes.  However, paying for driving from home to work is not tax free and has to be included in taxable W-2 wages.

For business related trips, such as misc. errands, the employees can be reimbursed tax free if they turn in the number of business miles driven.  This is what IRS considers an accountable plan.  Those reimbursements, as long as they are no higher than the IRS"s official rate, do not have to be included on the W-2.

The other kind of plan, where a flat amount is provided for an auto allowance without any documentation of actual business miles drive, is called a non-accountable plan.  Those payments must be included in the employees' W-2s as part of their gross wages.  They can then deduct on their Schedule A their actual business miles.

Kerry

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 7/06/2005 07:34:00 PM Send this post: