Accountable plan?

[Matt Sova]

Page 8-12 of TTB says that employer can reimburse for Travel, Meals and Entertainment under an accountable plan. What about other expenses? Here is the situation:

EmployEE lands a client and EmployER will receive $10,000 in revenues.
EmployER will pay 50%, or $5,000 in commission to EmployEE.

In order to get this client employEE gave away $1,000 of printing costs. EmployER pays the bill of $1,000 and the employEE is responsible for 50% or $500 of the bill.

Now the employER is going to cut the payroll check for the commission of $5,000 to the employEE and remove $500 from the commission for his share of the expenses. The employEE does not want to pay tax on the $5,000, but only $4,500.

Can the employer, under an accountable plan, withhold $500 PREtax from the commission check for these expenses, or would the $500 come out POST tax?

Any cite you may have would be helpful.

[Nashville]

Printing Cost

Matt, who actually PAID for the $1000 printing costs? Did the employee arrange for his employer to pay this, or did he pay $1000 out-of-pocket? Your post says he "gave" this away...doesn't tell us whether he paid this himself or arranged for a credit with his employer.

[Matt Sova]

Payment

The employer pays the cost up front. Then when the commission $$ comes into the company the employer pays the sales person their commission and will reduce the payment by 50% of the printing costs.

So the question is, when the employer is cutting the commission check is it $5000 taxable gross with $500 coming out AFTER taxes. Or is it $4,500 taxable gross?

[Nashville]

My Take

My interpretation is that this arrangement has nothing to do with an accountable plan, period. There are no travel, entertainment, mileage, meals, etc, and to top it off, the employee is not being reimbursed any out-of-pocket money whatsoever, for anything.

The employee is being paid (or SHOULD be paid) $4500 on a W-2, and at that point he will have taxable compensation for the agreed-upon commission. The extra $500 should not even be considered to be put on his W-2, unless he is first paid the entire $5000 and then they recover $500 from his paycheck later. If this happens, it is simply a timing difference and $5000 is taxable compensation (pre-tax) and the ($500) is later deducted on a pre-tax basis.

You've asked for a cite, but I think this concept is so far removed from Code and Regs on accountable plans that we would never find one there. We might find a cite somewhere on a definition of compensation and/or timing differences.

[Matt Sova]

Thanks

Nash - thanks for the input. I think your logic is on the right track. They should be reducing his commissions by the share of expenses and putting that on his W-2.