1099misc

[Earl]

Have client who is a W2 employee. Received a 1099-MISC with Block 7 entry. Issued for amounts paid as fuel reimbursement. Does not keep log of mileage. Just turns in gas receipts. Uses own car.

Easiest way to handle?

[RitaB]

My off the cuff answer

And it's worth what you're paying...

I would complete Sch C, which is what IRS will expect and back out the reimbursement on page 2 of Sch C with explanation like:

"Employee reimbursement properly reported on Form 2106."

Then, the correct thing would be add Form 2106, and complete it properly. But, I think if you don't use Sch C, IRS will ignore any explanation you might enter on the 2106. (Trust me.) If this is not an accountable plan, the guy better reconstruct some records.

[Earl]

1099 Misc

Client does not have any records. Just turns over gas receipts to company and they reimburse him. Apparently does not matter whether use is business or personal they just reimburse him for any receipt he submits to them.

Should properly be put on W2 but might be a problem getting company to change reporting medium.

Did not want client to have to pay both parts of FICA, however, if can't get company to put of new W2 will probably just go with Schedule C with no expenses.

ANy other ideas.

[BHoffman]

Messy. Maybe line 21 without SE tax as a one time occurance?

[ChEAr$]

All this sounds to me like an accountable plan (whether or not in writing!), since
he said he turns in gas receipts and gets reimbursed. Company should not have
issued any 1099 atall.

[Earl]

1099 Misc

Cannot be a qualified reimbursement plan since client works in company office only. Does not use car for job in any capacity.

Further information from client indicates that the company did this to keep him from going over limit for social security earnings. i.e., would not show up as wages.

However, it has to show up somewhere as either wages or self-employment income. I'm still not settled on where to report although I am leaning toward Schedule C to report. I wish I could put it on Line 21 but this does not seem to fit the situation.

Any other ideas.

[S T]

Probably Accountable Plan

I have reported these in the past as RitaB pointed out -
Schedule C report the 1099 income amount
Schedule C report like amount for deduction with notation reported on form 2106
That clears out the computer matching for the 1099 Form

Since the t/p is a W-2 employee - add form 2106 to the return and then report the mileage, etc on form 2106 He will lose the 2% under misc deductions but that is better than the line 21 or SE tax.

One would hope that if the t/p didn't keep the receipts and records, that the employer did for the reimbursement. Might be advantageous for the t/p to request a copy of that back up for his records. Moving forward provide your t/p with some instruction and maybe some forms on record keeping prior to turning into the Employer. Maybe also advise the Employer how to report for future.

Sandy

[BHoffman]

Does not use car for job in any capacity...I wish I could put it on Line 21 but this does not seem to fit the situation.

Any other ideas.

Based on "Does not use car for job in any capacity" it sounds so much like a nonaccountable plan. Still very messy Agree with S T: Perhaps a friendly offer to explain how to correctly report this sort of thing to his employer - who might make a nice new business client for you

[Earl]

1099 Misc

Client came in today. After talking with client the following information came to light.

Client is on disability social security. He can only make up to $1,000 or so per month without losing SS.

He only works part time for company and when he works overtime and it looks like he will go over the $1,000 for the month the company pays him off the W2 (sort of under the table). THen in order to show on their books they use 1l099 MISC and show it as gas reimbursement.

Bad part is the 1099 income increases his EIC and if put on Schedule C could look like he is just trying for maximum EIC.

This is actually wages so putting it on Line 21 does not seem right way to go.

I'm lost as how to report on return. However, since there is a 1099 to back up amount will probably put it on Schedule C and if it affects his disability SS I can't help it.

[BHoffman]

Ouch

Hi Earl - when these things happen, I think: "Hey, I just report the news. I don't make the news." It's hard when you are sitting face to face with your (probably) well-liked client, and have to give them bad news. On the other hand, it is heartening if this fellow is able to earn a living in spite of his disability.

[Earl]

One More Time

For such a small amount of money involved this has created quite a dilemna.

Down to two possible solutions

1. Report on Schedule C with no expenses.

Pro: This gets all the taxes paid that would have been paid if it had been correctly reported on W2.
Con: Could possibly affect clients social security.

2. Since employer is saying that the amount is reimbursement for gas expenses Report on Schedule C with amount shown as expense and referral to 2106. On 2106 show no expenses and on Line 7 show employer reimbursements for 1099MISC amount.
This would then get carried to wages on 1040.

Pro: Income reported but should have no effect on social security
Con: None of the FICA taxes will be paid, however, since caused by employer let them worry about that.

Which way would any of you go?

[ChEAr$]

Since the amount was not really "gas money", since it was really pay for services, and
since it was reported in box 7, schedule c ez is the answer with concomitant se tax.

[Burke]

I agree. If it were really gas money, no 1099 should have been issued (see IRS instructions for issuing 1099's). Since it wasn't, there is nothing an ethical preparer can do except report it as earned income, and let the chips fall where they may. It's the TP and the employer who have the problem.

[Earl]

Thanks

Appreciate the answers. Had about come to that conclusion myself but nice to receive support in my thinking.

[RitaB]

Agree with others

He only works part time for company and when he works overtime and it looks like he will go over the $1,000 for the month the company pays him off the W2 (sort of under the table). THen in order to show on their books they use 1l099 MISC and show it as gas reimbursement.

Sounds like they are "smart enough" to cheat, but not smart enough to know how. Hey, read up on box 7, people. (Reminds me of our EIC people who report half their income when they would have come out better by telling the truth.) Glad he can work, etc., but I gotta wonder if he should be drawing disabilty at all. Anyhow, rules are rules, and you just do your job correctly.