Plese 150-200 words Motor vehicle services technicians usually must provide thei
ID: 2487735 • Letter: P
Question
Plese 150-200 words
Motor vehicle services technicians usually must provide their own tools as part of their employment. These tools are the property of the technician, and service technicians generally receive an hourly wage. Some automobile dealerships split service technician wages into classifications such as tool reimbursements and wages. The result of this practice is that workers’ hours are taxed and the tool reimbursements are not because they are classified as a business expense.
Should the tool reimbursement be treated as income on the service technicians W-2? Why or why not? What are some implications of this practice?
Explanation / Answer
Yes the reimburesements to the service technicians termed as Tools reimbursement will be treated as income of the service technicians. As per lega memorandum from Revenue Service , the tool reimburesement paln fails to satisfy the three requirements of an accountable plan that are business connenction, substantiation and excess return.
The tool reimbursement plans work for merely recharacterizing a part of a technician's taxable wages as reimbursement . No substantiation of actual business requirement or actual business expenses incurred are done. Sufficient information regarding the business requirement of the expense not provided and excess of actual expense over reimbursement also not returned for including in the non reimbursement part of wages.
The ruling has restricted many such reimbursement practices to convert some of the taxable income part into non taxable part . For claiming such reimbursement as non taxable, there must be proper business connection, substantial with proof of expenses and return of excess reimbursement .