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When allowances are taxed twice

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  • When allowances are taxed twice

    I am an employee of a company to which I am a contractor for the Federal government.
    I work at an hourly rate.
    I am paid for my overtime and federal holidays if i take the time off.
    Along with my normal paycheck, I am provided a "vehicle allowance" for using my personal vehicle for work. This "allowance" is to cover out of pocket expenses for fuel, insurance, maintainence, etc,
    My employer is paid this "allowance" by the Federal Gov.
    My employer does not pay this to me directly, but takes a cut of the allowance, then add this allowance to my earned income. ,,,yup... i pay earned income tax on top of all the other taxes i would pay for fuel, insurance, maintainence...

    Some other people I work with are also contractors for the Fed, however the are employed by a different company. Their company does NOT add the vehicle allowance to their earned income, but issue them a separate check for vehicle allowance.

    Somewhere I feel I'm getting screwed. When i brought this up to the liason who works between my company and the Fed, I was told my company has all the paperwork to prove the employer is doing the right and legal thing by adding this allowance into my earned income.

    Can someone please tell me what is correct here and provide me links to copy of labor and payroll laws that would show me that me paying taxes on money paid which I have already paid taxes on is legal?

    Help please!

  • #2
    "Allowances", like any other form of compensation, are taxable unless they meet certain criteria. It's very likely that it's the other employer that is wrong.

    I'm assuming it's a flat amount per month for which you don't have to provide an accounting of how you spend it, nor refund anything you don't spend; is this correct?

    If so, the allowance does not qualify as an "accountable plan" and therefore is reportable as income and subject to all payroll withholding.

    http://www.irs.gov/publications/p463/ch06.html

    This is no different than having taxes withheld on your regular salary, then paying sales tax when you buy a washing machine.
    Pattymd
    Senior Member
    Last edited by Pattymd; 06-09-2008, 05:44 PM.
    I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.

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    • #3
      close...

      It is not a flat rate per month.
      It's paid on a daily rate, then taxed.


      Hypothetical Example:
      I work for $5.00 per hour gt 40 hours per week.
      I work 10 hour over time. 4 hours on Saturday, 6 hours on Sunday.
      My pay before taxes is: $275.00
      In addition to this, I receive $2.00 per day to drive and use my personal vehicle for work, and during work, as part of my job. $2.00 x 7 days. This $2.00 was suppose to cover my expenses for using my personal vehicle at and during and for working purposes. One step further.... it is required I have an off road vehicle to maintain the position I hold. [more fueld, higher insurance, and much more maintainence than just driving on the streets...
      I pay for fuel, maintaining, insurance but do not have to provide receipts.

      So.. $289.00 is taxed as earned income??????

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      • #4
        Same difference.

        Yes, that is correct, it is taxable income. Did you read any of the link I provided, especially the section titled "unaccountable plans"?

        Now, if you can show that the amount you spend related to the business use of your vehicle is more than this allowance (and that's receipts, and the incremental cost, likely based on miles for business vs. total miles driven), then you may be able to deduct the difference as a unreimbursed business expense. See a tax preparer for the records you must keep.
        I don't respond to Private Messages unless the moderator specifically refers you to me for that purpose. Thank you.

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        • #5
          Thanks so much for your help!

          Comment

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