I had a job related expense that was reimbursed by my employer. However, taxes were wrongly withdrawn from the reimbursed money. What is the best way to correct this? My boss stated perhaps this could be corrected by withdrawing less taxes from future paychecks, but wouldn't I end up owing again when I file next year?

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Originally Posted by doclina

I had a job related expense that was reimbursed by my employer. However, taxes were wrongly withdrawn from the reimbursed money. What is the best way to correct this? My boss stated perhaps this could be corrected by withdrawing less taxes from future paychecks, but wouldn't I end up owing again when I file next year?

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If they are careful to NOT include the reimbursement in the amount of taxable wages that they report on your W2 it will turn out all right - you will have overpaid withholding taxes and hence you'll get a bigger refund when you file your taxes. But if they compound the error by including the reimbursement as taxable wages on your W2 you're only recourse will be to claim the expense as an unreimbursed employee expense as a deduction on Schedule A. But that only helps if (a) you itemize deductions and (b) the amount of miscellaneous deductions that you have are in excess of 2% of your adjusted gross income. In any event you won't come out whole. So be sure that they are in agreement to not inlcuide the reimbursement ion your W2. By the way - this will also have the effect of you over-paying social security and medicaid tax - these overpayments will be reversed when you file your taxes next year.

Thank you for your response. Now for a kicker. My reimbursement was paid 12/23/11. I notified my boss ~ one month after being paid - having automatic deposits, my error for not checking sooner. But it has taken him this long to try to rectify issue. So I am nervous this won't be settled and I am going to lose out on the money.

That is a kicker indeed, as it's too late to rectify the problem. Your bosses suggestion to under-withhold taxes in 2012 won't work, because they will be in violation of IRS rules and you'll just end up owing anyway. I would suggest since this was their fault that they should grant you with a one-time bonus equal to the amount of taxes that you had to pay on the reimbursement, and grossed up by an additional 30% to cover the fact that this one-time payment is itself taxable. So for example if the amount of reimbursement was $1000 you probably paid about $200 in taxes that you shouldn't have, give or take. So this year they can give you a bonus of $200 + $60 = $260, which after taxes are paid will net you the $200 they owe you.

Amount I was reimbursed was $2211. Amt w/drawn in taxes was $871. So they would have to pay out gross check of $1132. Hhmmm, wonder how my boss would accept this.
Again thank you for the help