With close margins and scarce profits, contractors may look for some edge with cost cutting plans that may actually be very expensive in the long run, if audited, resulting in expensive additional taxes, penalties, and interest. But knowing the rules can give the contractor an actual edge with personnel costs.
The IRS has recently ruled that employees do not have to closely track the usage of cell phones. So company provided cell phones can be an employment perk, when the usage is limited to company communications. The company needs to have a written policy for this. This really doesn’t give the company, or employees, a new break, but sets the rules for what many companies were already doing anyway.
In September, the IRS set the new per diem rates for post-September 30, 2011 business travel. Employers can pay employees up to the published rates to reimburse employees on business travel status instead of reimbursing them for actual costs, as long as the employee provides simplified substantiation, which is basically just the time, place and business purpose of the travel. The published rate covers lodging, meals and incidental costs, and the rates are treated as if made under an accountable plan, which means that it does not get reported on the employee’s W-2. There are two standard rates, one for high cost locations, which is $242 per day, and the other for all other locations at $163 per day. The meal part of the payment is only 50% deductible.
Tool cost reimbursements plans also received an update from the IRS in March with CCA 201120021. Contrary to what many companies believe, the employer cannot give the employee a non-accountable tool reimbursement, or truck allowance, or any other non-accountable reimbursement or payment without putting that payment on the worker’s W-2. To exclude the tool payments from the W-2, it has to be a direct reimbursement for actual costs, or for costs reasonably expected to be incurred by the employee in the business of the employer.
The IRS also announced in September a new voluntary settlement program for qualified employers who may have treated workers as independent contractors whom were actually employees according to current IRS guidelines and interpretations. The contractors can escape possible prior year penalties and taxes if they agree to treat the workers as employees on a prospective basis. Contractors with these prior problems or even uncertainties on prior treatment may be able to sidestep some taxes with this program.
Alan K. Clark is an Atlanta accountant who focuses his practice on the construction industry. Contact Al at 404-252-2208 or [email protected].