https://www.americancityandcounty.com/wp-content/themes/acc_child/assets/images/logo/footer-logo.png
Banking Technology
  • NEWSLETTER
  • Home
  • Expert Insights
    • Back
    • Expert Insights
    • Commentaries
    • Smart Cities Council
    • Co-op Solutions
  • News
  • In-Depth
  • Multimedia
  • Resources
    • Back
    • Resources
    • Webinars
    • White Papers
    • American City & County Awards
    • Events
    • Municipal Cost Index – Archive
  • Magazine
    • Back
    • Digital Editions
    • Reprints & Reuse
  • About Us
    • Back
    • About Us
    • Contact Us
    • Privacy Statement
    • Terms of Service
  • Administration
  • Economy & Finance
  • Procurement
  • Public Safety
  • Public Works & Utilities
  • Smart Cities & Technology
  • Home
  • Co-op Solutions
  • Expert Insights
    • Back
    • Commentaries
    • Smart Cities Council
  • News
  • In-Depth
  • Multimedia
  • Resources
    • Back
    • Webinars
    • White Papers
    • American City & County Awards
    • Events
    • Municipal Cost Index
  • Magazine
    • Back
    • Digital Editions
    • Reprints & Reuse
    • Subscribe to AC&C
    • Manage AC&C Subscription
    • Subscribe to GovPro
    • Manage GovPro Subscription
    • Advertise
  • About Us
    • Back
    • About Us
    • Contact Us
    • Cookie Policy
    • Privacy Stament
    • Terms of Service
  • newsletter
  • Administration
  • Economy & Finance
  • Procurement
  • Public Safety
  • Public Works & Utilities
  • Smart Cities & Technology
acc.com

Commentaries


Commentary

How the IRS is watching municipal employee benefits

How the IRS is watching municipal employee benefits

CPA Randy Shepard explains how to properly report employee reimbursements to the Internal Revenue Service.
  • Written by contributor
  • 7th February 2018

By Randy Shepard

 

Local governments of all sizes continue to be the subject of Internal Revenue Service (IRS) audits that have resulted in assessment of significant fines and back taxes. Often these findings come as a surprise to the governments, who assume they were handling things properly.

The specific areas of IRS concern have been in four major areas: personal use of employer-provided vehicles, cell phones, clothing allowances and meal reimbursements.

​PersonaI use of vehicles
The biggest risk is in the reporting and calculation of the “commuting benefit” for employees who are provided a take-home vehicle.

For employees with take-home vehicles, the commuting benefit is taxable income and must be reported to the IRS. The easiest way to do this is by establishing a daily benefit amount (IRS currently allows for $3.00 per day) and reporting it as taxable income on the employee’s Form W-2.

For elected officials with a government owned vehicle, the IRS requires a calculation using the lease value of the vehicle and a statement of the percentage of total vehicle usage that is personal in nature. This must also be reported as taxable income on the employee’s W-2.

Cell Phones
Cell phones historically were considered listed property under the Internal Revenue Code Section 280F. The Small Business Jobs Act of 2010 enables the value of personal usage of a device provided to an employee predominately for business purposes to be excluded from the employee’s gross income. It is recommended that government entities adopt policies regarding the personal use of employer-provided cell phones, identifying the device as predominately for business purposes.

Many employers have a flat monthly payment to employees who use their personal cell phones for work-related purposes. Such flat monthly payments are no longer considered income. These payments can be made through the payroll system as reimbursements and excluded from taxable income.

Clothing allowances
In accordance with many collective bargaining agreements and other agreements, many public sector employees receive payments for clothing and uniforms. Where employees provide a proof of purchase and receive payment, no IRS tax liability exists.

However, in a system where employees receive a flat dollar allowance and do not have to account to the employer for this allowance (receipts), then the payment is a taxable fringe benefit. It is recommended that such allowances be paid through the payroll system with the appropriate payroll tax withholdings taken and included on the employee’s W-2. It is the employee’s responsibility to then deduct their actual expenditures and employee businesses expenses on their individual tax return subject to the normal limitations.
 

Meal reimbursements
In general, reimbursements for employee meal and lodging expenses must be related to overnight travel on behalf of the employer.

There are many government entities with policies or agreements that reimburse employees for meals purchased a certain distance from their office or outside of the government’s boundaries. In both cases, these reimbursements are generally considered to be additional wages to the employee if there is no overnight travel associated with the expense, and must be reported as income on the employee’s W-2.

There are other significant areas of concern in this employee-benefit arena, including worker classification and independent contractor status, along with various awards and prizes. All of these issues merit a closer look by government leaders.

The IRS will likely not lighten up on its active enforcement of government-related employee benefit rules. Review your current situation and contact knowledgeable professionals with questions.

Randy Shepard, CPA,  is a partner in The Bonadio Group’s Government Division and provides consulting, accounting and auditing services for clients such as municipalities, public authorities, school districts and local development corporations.

 

_____________

To get connected and stay up-to-date with similar content from American City & County:
Like us on Facebook

Follow us on Twitter
Watch us on YouTube

Tags: Economy Commentaries Commentary

Twitter


AmerCityCounty

A new #report ranks the 52 American #metropolitan areas with over 1 million residents based on their… twitter.com/i/web/status/1…

14th February 2019
AmerCityCounty

Today, we announced the six winners of American #City & #County's 2018 Crown Communities awards! Congratulations to… twitter.com/i/web/status/1…

12th February 2019
AmerCityCounty

The @CityOfNOLA #CityCouncil is calling for the @NFL to review its rules after the @Saints lost the… twitter.com/i/web/status/1…

29th January 2019
AmerCityCounty

Is your #city among #UHaul's top 25 #GrowthCities for 2018? buff.ly/2S8hptr https://t.co/rI4x0Lcdql

25th January 2019
AmerCityCounty

The personal information for approximately 1,470 #Knoxville, Tenn. #government employees was inadvertently posted o… twitter.com/i/web/status/1…

25th January 2019
AmerCityCounty

““Seconded” staffers, or temporary #procurement professionals at #DallasAreaRapidTransit handle varying heavy workl… twitter.com/i/web/status/1…

23rd January 2019
AmerCityCounty

As the longest #GovernmentShutdown in U.S. history continues with no sign of abating, city governments are stepping… twitter.com/i/web/status/1…

15th January 2019
AmerCityCounty

Florida Governor @RonDeSantisFL formally suspended #BrowardCounty, Fla. Sheriff Scott Israel on Jan. 11, following… twitter.com/i/web/status/1…

15th January 2019

Newsletters

Sign up for American City & County’s newsletters to receive regular news and information updates about local governments.

Expert Insights

Learn from experts in the public and private sectors about best practices and how to optimize your government’s operations.

Municipal Cost Index

Updated monthly since 1978, our exclusive Municipal Cost Index shows the effects of inflation on the cost of providing municipal services

Media Kit and Advertising

Want to reach our digital and print audiences? Learn more here.

American City and County

© American City and County 2019. All rights reserved.

  • About Us
  • Contact Us
  • Cookies Policy
  • Privacy Statement
  • Terms of Service

Related Links

  • IWCE’s Urgent Communications
  • IWCE Expo

Follow us

Websites are now required by law to gain your consent before applying cookies. We use cookies to improve your browsing experience. Parts of the website may not work as expected without them. By closing or ignoring this message, you are consenting to our use of cookies.
X