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Is taxing mileage reimbursement fair? North Dakota

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  • Is taxing mileage reimbursement fair? North Dakota

    I work for county government in state of North Dakota. I recently attended a state agency "mandated" committee meeting 75 miles from my office for which the state said they would reimburse me for mileage. Now that I'm home I received an email today that I need to fill out a W-9 for reimbursement and that I'd receive a w-2 for taxes - another words I have to pay taxes on my mileage reimbursement? (no meals involved - only 150 miles round trip for a 1.5 hour meeting) Can they do this? I've already paid taxes on the money I used to pay for the gas/insurance/maintenance on my personal vehicle. Is this not double taxation?

  • #2
    I try to stay away from the whole "fair" thing, but I will take a shot at the "legal" thing.
    - The W-9 makes no sense what-so-ever. W-9s are for non employees (aka "vendors") and are used to collect vendor information for later 1099-MISC issuance. There are legally very, very few situations in which an employer would issue a 1099 to an employee and this is not one of those very few situations.
    - IRS has some very specific rules regarding expense reimbursement. If the very specific rules (IRS pubs 15 and 463) for expense reimbursement are followed ("accountable plan"), then we have a non-taxable transaction. If the very specific rules are not followed ("non-accountable plan"), then we have a taxable transaction. I am pretty familar with these rules and IRS (and the Internal Revenue Code) does not consider "fair" to be part of the equation.

    This is an oversimplification, but basically if:
    - You are driving your own car (not a company car).
    - You document (not "can" document, but rather "did" document) something IRS would recognize as a legitimate business purpose for the trip.
    - You document actual mileage driven.
    - And your employer pays no more then $0.505/mile (2008). Paying more results in a partially taxable transaction, plus complicate W-2 reporting requirements.

    Then you have a non-taxable and non-reportable transaction. Failing any of those tests and things get complicated. You have a completely or partially taxable transaction.

    The other thing that does not make much sense (to me anyhow) is what possible reason your employer would have to be messing around with W-9s and taxable transactions? If this is a legitimate business trip and if the accountable plan rules are followed, then this is a non-taxable transaction. It is as much in your employer's interest to process this as a non-taxable transaction (if legally possible) as it is in yours. If what you describe is both accurate and complete, then your employer is going out of their way to hurt not just you, but also to hurt themselves.

    Not your question, but "allowances", where the employer just hands over money without making any effort to follow the accountable plan rules are fully taxable payroll wages. An example might be a $500/mn auto allowances. However even this would not involve a W-9. That is not the type of document that payroll or employees would normally be interested in.
    Last edited by DAW; 01-28-2008, 06:03 PM.
    "Reality is that which, when you stop believing in it, doesn't go away".
    Philip K. **** (1928-1982)


    • #3
      more info taxable mileage reimbursement

      Just to clarify - I am a county employee and the State of ND is to reimburse me mileage for attending a committee meeting they have mandated at the state level that I attend that meeting. Now they want me to fill out a w-9 for the state before they will reimburse my mileage - no per diem is figured in.


      • #4
        whoops - more info..

        I used my personal vehicle and they are reimburisng $0.45 per actual miles driven (= 150 miles round trip). SO this should be non-taxable if I'm reading your response correctly and I should not have to fill out a w-9. Correct????


        • #5
          There is no legal reason for you to fill out a W-9. Someone has a screw lose on that one. However, employers sometimes have a screw lose and they could I guess order you to complete a W-9 on pain of termination if you do not. So far no law would be broken. However the only point of collecting a W-9 is to issue a 1099, which they cannot legally do. If they issue a 1099 they are saying that this is non-employee compensation legally unrelated to the employment relationship. IRS would require such an action as an illegal attempt to avoid employment taxes on the part of the employer.

          There is no reason for a $0.45/cent per mile reimbursement to be considered taxable unless the accountable plan rules have somehow failed. While I do not see why that would have happened based on what you have said, you are not talking to the right person. Talk to your employer and ask them why they think it is a taxable transaction. They are breaking no laws if they want to make the payment taxable, but they also are making no sense. If they can legally make the transaction non-taxable, and this is to their advantage, it makes no sense that they do not.

          Just to be clear, IRS has no problem with the mileage being treated as taxable. IRS loves taxable transactions.
          "Reality is that which, when you stop believing in it, doesn't go away".
          Philip K. **** (1928-1982)


          • #6

            It's not my employer (the county) who is requiring I fill w-9, but the State Agency who is supposed to pay me a reimbursement. Do you think I should fill out a w-9 and deal with it next Jan if they try to send it in as taxable income? I'm inclined to tell them to keep thier reimbursement and refuse to attend any more meetings!


            • #7
              OK, this changes everything. Since the payer is not your employer, then you are indeed a "non-employee" to them, a W-9 is indicated, and a 1099 may indeed be issued (subject to the $600 limit).

              Your decision on refusing the payment but it is very unlikely that you are in a 100% tax braket, so even if this is even reported as income, it is still in your financial advantange to take the payment and pay the taxes.
              "Reality is that which, when you stop believing in it, doesn't go away".
              Philip K. **** (1928-1982)


              • #8

                I'll know more after I do this years taxes, but I know when combined with my husband's income we are inching closer to the next tax bracket - which I believe makes it an unwise move to have additional income. If we go over by a bit we'll end up loosing more than I'd gain.

                Thanks so much for your input. (Even though I don't think its right they can do that - but as you indicated, IRS isn't "fair")


                • #9
                  I know this is an ANCIENT post but there is some information missing. If they are paying you the IRS mileage allowance rate only and issuing you a 1099-MISC the transaction would effectively be non-taxable (assuming you do an itemized deduction) since you can deduct those miles driven at the same rate they are paying you.


                  • #10
                    I think it's unlikely that the OP is coming back a year after the fact.
                    The above answer, whatever it is, assumes that no legally binding and enforceable contract or CBA says otherwise. If it does, then the terms of the contract or CBA apply.


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