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Date: December 4, 2012

Bulletin Number: 1213

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Subject

Year-End Procedure for Taxable Employee Expense Reimbursements

Purpose

To provide calendar year-end procedures for taxable travel reimbursements in order to comply with IRS reporting requirements. This bulletin replaces Bulletin A-629/P-1093.

Background

Taxable travel reimbursements include:

  • Excess Personal Car Mileage (PCM) Reimbursements
  • Excess Per Diem Payments
  • Non-Overnight Meal Allowances
  • Employee Payments Taxable Under the IRS One-Year Rule

Excess PCM and Per Diem Amounts:

  • IRS rules relating to employee business expense reimbursements require withholding and Form W-2 reporting on any excess amounts paid.
  • “Excess amount” is the portion that is greater than the applicable Federal rate and not substantiated by receipts.
  • The 2012 maximum rate allowed by IRS for PCM is 55.5 cents per mile effective from January 1, 2012 through December 31, 2012.    
  • Current maximum Federal per diems for the continental U.S. can be found in the Guide to Financial Operations Chapter XIII Section 4.E.

Non-Overnight Meal Allowances

  • The IRS requires employers to report and withhold income and employment taxes from meal allowances for non-overnight travel (day trips).

One-Year Rule

  • The IRS requires employers to report travel reimbursements and withhold income and employment taxes if employment away from home at a single location is realistically expected to last for more than one year.

Further explanations of rules for excess PCM, Per Diem Amounts, Non-Overnight Meal Allowances and One-Year Rule can be found
in the Guide to Financial Operations Chapter XIII Section 4.E.

OSC Actions

Each month, taxable travel reimbursement data is transferred from Statewide Financial System (SFS) to PayServ and the calculated amounts are reflected on the employee’s paycheck advice as a “Taxable Expense” (Earnings code TXE).  The final transfer of taxable travel reimbursements for 2012 will occur on December 7, 2012, and will include all reimbursements paid by the SFS from November 21, 2012 through December 7, 2012.  The reimbursements will be reflected as “Taxable Expense” on the advices of the Administration and Institution paychecks dated December 19, 2012 and December 27, 2012, respectively.

OSC Actions- Year-End

Any taxable travel reimbursement paid by the SFS from December 8, 2012 through December 31, 2012 will be handled differently in PayServ through an automated process.  Taxable travel reimbursements are subject to income and employment taxes; however these “Taxable Expense” items will not have taxes withheld in 2012, as the expense will not be reflected in the Administration payroll checks dated December 19, 2012 or the Institution payroll checks dated December 27, 2012. Instead, the automated process will add these amounts to the employee’s reportable taxable income in box 1 on the employee’s 2012 Form W-2. 

Social Security/Medicare tax deficiency deductions will be initiated for any “Taxable Expense” that did not have the proper amount of taxes withheld in 2012.  Employees who paid the maximum amount of Social Security for 2012 will only have a deduction for the Medicare tax deficiency in a 2013 paycheck.

Agency Actions

To avoid under-withholding of income taxes for 2012 and subsequent deductions for Social Security and Medicare tax deficiencies in 2013, Payroll Officers should work with their employees to accelerate the submission of Expense Reports to SFS so that these are received, audited and paid no later than December 7, 2012.

Questions

Please direct Payroll or Form W-2 questions to the Tax Administration and Compliance mailbox.

Please direct other questions to the SFS Help Desk at helpdesk@sfs.ny.gov or (518) 457-7737 / (877) 737-4185.