non-deductible moving expenses not inclu in w2 box 1

[bgiez]

New client (need I say more?) was transferred & company gave her a letter stating they would pay all moving expenses that were deductible on federal return up to $9600. She asked them what expenses were deductible, was told to ask her accountant. She did not ask anyone (no surprise there), but submitted expense reports with mileage at 40.5 cents/mile rather than 15 cents/mile, included meals, and other expenses that are not deductible. The total submitted was less than the $9600. Her company reimbursed her for those expenses and then paid her the difference between what she submitted and $9600. The difference was included on her W2 box 1 wages. The amount she was reimbursed did not show anywhere.

Now, my question is - was I correct to use form 4137 to add the non-deductible reimbursed expenses to her income and to calculate social security & medicare? I attached a statement explaining that the amount on 4137 was not tips, but company paid non-deductible moving expenses. ( I have use this tactic in the past for a vehicle allowance paid on form 1099Misc to someone who had no business mileage )

[Bees Knees]

There is no procedure or ruling to suggest that the taxable reimbursement should go on Form 4137. The only reason you do that for a 1099-MISC for income that should have been paid on a W-2 is because there is an IRS Publication that talks about doing that.

In your case, you are dealing with a taxable fringe benefit, not cash wages. Taxable fringe benefits should go on a W-2. But if the employer fails to report the income and withhold FICA taxes, the employee is not responsible for paying the employer payroll taxes. Taxable fringe benefits are either added to line 7 of the 1040, or line 21. But nowhere does it tell you to also kick in the FICA taxes if it originally was subject to FICA. That is up to the IRS to enforce FICA withholding rules on the employer.

Form 4137 is the only case where non self-employed individuals are required to pay tax on their share of FICA. If there isn't a written procedure in place telling you to report taxable fringe benefits there, then don't do it. Your theory may be correct, but the procedure isn't.

Nobody said IRS procedures are always fair and consistent.