IRS Affirms Rule on Reimbursements and Wages

by James F. McDonough, Jr. on December 5, 2012

The rules governing employee wages, reimbursements and taxes have been confusing for some business owners who have been levied taxes for improper accounting. However, the Internal Revenue Service provided more clarity on the issue in a recent ruling.

The ruling reaffirms the existing tax law governing reimbursements, which states that expenses incurred by employees must have a business connection in order for workers to be reimbursed tax-free. The agency outlined several scenarios in which companies have improperly recharacterized employee taxable wages as nontaxable business expense reimbursements.