Tax-Free Stipend or Compensation?

[Golden Rocket]

An arrangement involving shift work has "on call" payments.

An employee (not necessarily the same employee all the time) receives $25 per shift for being "on call". If he has to go in on an emergency basis, he is paid normal pay, but whether this happens or not, he is being paid $25 to make himself AVAILABLE.

Should the employer take the position that this is a tax-free stipend to reimburse the employee for "costs" of making himself available? Can the employer take the position that these are de minimis payments? Or is this just plain ole' compensation??

If anyone feels strongly about the above, can a cite be provided??

[S T]

Without posting a lot of links to articles I found after a "google search" - all that I read is that on-call is considered compensation and in some cases could be considered as overtime

You should also look to your State Labor Laws - the FLSA as well -

''On-Call'' Pay: If employees who are on-call are not confined to their
homes or any particular place, but are required only to leave word
where they may be reached, the hours spent on-call are not regarded as
working time. However, any payment for such on-call time, while not
attributable to any particular hours of work, is paid for performing
a duty connected with the job and must be included in the employee's
regular rate. If an on-call employee is called out for a job assignment,
the time spent on the assignment is hours worked and must be counted
and paid for. For example, an employee paid $4.00 an hour works 40
hours and is paid $22 for being on-call over the weekend. If called
back for 4 hours of work, the pay is $160.00 (40 hours x $4.00) plus
$22 on-call pay plus $16 straight-time pay for 4 overtime hours, or
$198.00. Dividing the total earnings of $198.00 by 44 hours worked
yields a regular rate of $4.50 an hour. One-half the regular rate
times 4 overtime hours equals $9.00 overtime pay, making the total
pay $207.00 for the week.

Based on your OP I do not believe you are questioning whether or not the Employee should be paid for on call, but whether or not it should be treated as compensation subject to payroll taxes and reported on a W-2 vs not subject to payroll taxes and reported on a 1099.

If it were me processing payroll and payments - I would treat as part of the payroll subject to --

Sandy

[Snaggletooth]

Compensation is the question

Based on your OP I do not believe you are questioning whether or not the Employee should be paid for on call, but whether or not it should be treated as compensation subject to payroll taxes and reported on a W-2 vs not subject to payroll taxes and reported on a 1099.

Thanks Sandy, for purposes of this thread, assume "on-call" pay is to be paid without question, and limit the discussion to whether this is W-2 compensation or not.

[David1980]

Just curious. What are the "costs" of making oneself available? If the costs were not "reimbursed" with the $25, would the "costs" be deductible to the employee?

[FEDUKE404]

Costs not necessarily the issue

Just curious. What are the "costs" of making oneself available? If the costs were not "reimbursed" with the $25, would the "costs" be deductible to the employee?

I definitely vote for taxable compensation (W2) for the $25 extra.

In my main job certain upper level (salaried) employees were frequently on call. The nature of being in that category changed over the years - from "being near a phone" to carrying a pager to the use of cell phones.

While it is true there likely were no direct "expenses" of being on call, there certainly could be valid reasons for employer financial consideration to be provided to the employee being in that situation. Things that come to mind include having to remain in the general geographic area, being subject to unexpected interruptions in numerous personal activities, and the obvious need to avoid excessive adult beverages during that time period.

Hope this detour was not a problem, Snaggletooth.

FE

[Golden Rocket]

Original Post

....was intentionally presented without bias toward either position. But I will tell you at this time, that there is considerable pressure being placed on the client NOT to treat the stipend as compensation. If fact, the party has even contacted LAWYERS who have told them it does not have to go on their W-2.

Of course, lawyers are so much smarter than we are. We should be trembling in our boots in awe of their Deity.

[smithtax]

IRC § 3121 Definitions

(a) Wages

For purposes of this chapter, the term "wages" means all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash

[dodgedipduck]

The only way reimbursement of these expenses would be nontaxable is if they were paid under an accountable plan. If the expenses and amounts can't be specifically identified, they won't qualify under accountable plan rules.

You could send an email to the attorney using a bigger font so they can understand. This payment is the same as a lawyer accepting a retainer to be "available" to do legal work for a client. A retainer is taxable as business income when it is received.

[DaveO]

It's taxable compensation and belongs on the W-2. It's been my experience that some attorneys will say anything they are paid to say.