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Expenses taxable? California

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  • Expenses taxable? California

    We had an employee resign with one day's notice - at the same time he turned in 12 Expense reports dating from early in 2011 through April 2013. Needless to say, our Controller was not happy. The Controller started looking at IRS code to make sure we had to pay the expenses (and take the $6500 hit all in this quarter). What he found in their code (Publication 463 published 2013 Travel, Entertainment, gift and Car Expense) instruction to pay expenses submitted after 60 days, but tax it the same as income.

    We paid it with the final paycheck, taxed like income. The employee is disputing this because it was not in our employee handbook and it is our fault for not reminding him to do his expense reports.

    Your thoughts?

  • #2
    IRC is not the issue. IRS sole interest is whether or not the payment is taxable or not. IRS could not care less whether the payment is made.

    The issue is CLC 2801. California law explictly says that employers must reimburse most business expenses. Now if you had a well published rule that expenses MUST be submitted within 90 days of the expense being incurred, THEN you would be in pretty good shape with CA-DLSE and a wage claim. The age of the expense reports is something in your favor but it is not by itself conclusive. Past that a wage claim with CA-DLSE is not the only venue open to the employee. The employee could file a small claims court action referencing CLC 2801 could still suceed even with a well communicated formal 90 day policy.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)

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    • #3
      To be fair, the ex-employee you are sooo much better off without could have filed a claim no matter what you did. You paid his absurdly late expenses in a manner which was legally acceptable and in keeping with IRS regulations. Were it me, I would dust my hands of this guy and drag out the policy for some major re-writes so this doesn't happen again.
      I post with the full knowledge and support of my employer, though the opinions rendered are my own and not necessarily representative of their position. In other words, I'm a free agent.

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