cash advances and failure of submitting expense reports
mhees10076
12 Posts
We have an officer in the company that has received numerous cash advances and has failed to submit expense reports. He is now resigning. Can we deduct from wages owed the amount that was given to him in the form of cash advances since he has never turned in expense reports? Thanks to all for all of your past help. Marlene
Comments
Amounts not substantiated or excess amounts not returned within a reasonable time are subject to employment taxes.
If an employee does not substantiate expenses within a reasonable time, or if excess reimbursements are not returned within a reasonable time, employers must treat the amounts as wages. Employment taxes must be withheld at the first payroll period following the expiration of a reasonable amount of time. Federal income tax withholding may be computed as if the reimbursement were a supplemental wage payment, so long as the reimbursement or advance was paid separately or identified separately.
IRS tests establish a reasonable amount of time.
The IRS has issued safe harbor tests to establish a reasonable amount of time. In most cases a reasonable amount of time for an employee
to substantiate expenses or return excess payments is determined on a case-by-case basis. However, the IRS has established two safe
harbor tests that may be used to determine a reasonable amount of time under an accountable plan (.04):
(1) The following fixed time periods will be found reasonable by the IRS:
¨ Advance payments made no more than 30 days before an employee incurs expenses;
¨ expenses that are substantiated within 60 days after they are incurred or paid; and
¨ excess payments that are returned to the employer within 120 days after being incurred or paid.
(2) A reasonable period of time will be established under IRS rules if the employer issues periodic statements to employees at least quarterly about unsubstantiated expenses or unreturned excess payments. Employees must substantiate the expenses or return excess payments within 120 days of the statement.