Landscaper - Schedule C

[Yardley CPA]

I've posted about Landscaper client of mine in the past.  He is a Schedule C, small operation out of his home.  Four trucks, nine employees.  Does not provide benefits to employees.  All payroll is handled through a payroll service.  Recently hired a "salesman" to help grow business.  Wants to contribute to salesman:

 

• Cell Phone - $40/month
• Personal Car allowance of $400/month
• Health Benefits - pay $250/month toward salesman health benefits

 

How are these expenses reflected in the salesman's W2?  Are they broken out or are they included as part of wages?  I don't have much experience on the payroll side and would appreciate any thoughts on this. 

Would the Landscaper show these expenses as part of salary expense?  Thank you. 

[mcb39]

My first thought is to include them in wages and then break them out in Box 14.

[Lion EA]

Wages.

 

Maybe someone really up on ACA (Jack, do you know?) can comment on whether it's better to have no health payments at all or to reimburse one out of several employees for health benefits.  Will that count as a health plan but not a qualified health plan and incur penalties?  Or, does none of that at all kick in until 50 employees?  (So far, none of my small businesses have any employees.  Still have more courses coming up in November, December, and January, though.)

[Jack from Ohio]

Wages.

 

Maybe someone really up on ACA (Jack, do you know?) can comment on whether it's better to have no health payments at all or to reimburse one out of several employees for health benefits.  Will that count as a health plan but not a qualified health plan and incur penalties?  Or, does none of that at all kick in until 50 employees?  (So far, none of my small businesses have any employees.  Still have more courses coming up in November, December, and January, though.)

Any payment made to an employee in lieu of health insurance must be considered Box 1, 3 & 5 taxable income.  The employee may deduct premiums he pays on Sch. A. 

 

These payments do NOT nor CANNOT be considered as healthcare insurance provided by the employer.

 

Phone and car allowance must be treated the same, and any expenses the employee incurs above those amounts go on 2106.

[Lion EA]

Great, Jack.  I was just concerned that reimbursing one employee when there are more might trigger some unintended consequences.

 

The most common question I get when a client/friend/hairdresser is considering hiring an employee is if the company can reimburse the new employee for his COBRA payments to his prior employer until he qualifies for the new employer's health insurance, or can reimburse for as long as COBRA lasts when new employer does not offer health insurance.

 

By the way, I have not had clients hiring employees over the last couple of years.  Some have been very outspoken about not hiring because they don't want to get caught in the tangle of ACA.

[Yardley CPA]

Thanks everyone for chiming in.  I appreciate it. 

[JimTaxes]

As far as the cell phone and auto allowance is concerned, if these are paid under an "accountable plan" where the employee substantiates expenses to the employer where the substantiation equals at least the amount of the payments to the employee, these amounts paid are tax-free to the employee.  If the substantiation is less the amount of the payments, only the amount of the payments unsubstantiated get included in wages. 

[Gail in Virginia]

And if the entire amount paid as reimbursement for the cell phone and auto expenses is included in boxes 1,3 and 5 of the W-2, then it is treated as regular income and the entire amount that the employee pays for those expenses that are job related would go on form 2106 - not just the amount above the reimbursement.

[Jack from Ohio]

And if the entire amount paid as reimbursement for the cell phone and auto expenses is included in boxes 1,3 and 5 of the W-2, then it is treated as regular income and the entire amount that the employee pays for those expenses that are job related would go on form 2106 - not just the amount above the reimbursement.

You are correct.  That is what I meant, but typed a short version.  Thank you for catching that Gail.

[michaelmars]

why not get him a "business" cell phone on your account.  Most carriers charge $10 a month for this.  Might consider a gas card too to make it easier. 

[Yardley CPA]

All great suggestions and input.  Thank you. 

[Abby Normal]

As far as the cell phone and auto allowance is concerned, if these are paid under an "accountable plan" where the employee substantiates expenses to the employer where the substantiation equals at least the amount of the payments to the employee, these amounts paid are tax-free to the employee.  If the substantiation is less the amount of the payments, only the amount of the payments unsubstantiated get included in wages. 

You should recommend that they implement an 'accountable plan' for at least the mileage. This will save both the company and the sales rep taxes. It's hard to have a cellphone reimbursement in an accountable plan because most cellphone plans are flat rate, so the employee incurs no additional costs.

[Gail in Virginia]

You are correct.  That is what I meant, but typed a short version.  Thank you for catching that Gail.

I knew you knew the difference, Jack, so I wasn't going to refer to your post.  Sometimes when we are typing we don't always get what we mean down on the screen - but we knew what we meant!

[SCL]

- welcome jim taxes...a newbie?

- jump in often with your tax knowledge.