[kanikaram42]

Hi,
I work for company A and it has client company B. I am indirectly working for company B as a sub contractor
via my company A. I am accepting the partial expenses from client company B directly as a check from company B even
Though I am employee of company A. Is this legally permitted ? Is there any limit for this ? Can you please reply me in detail. This question is to Atlanta Tax expert.
Thanks.

[AtlantaTaxExpert]

Kanikaram42:

If I read your statements correctly, Company B is reimbursing you for your expenses incurred while working for them. As long as it is only a reimbursement for expenses, there is nothing illegal about accepting such reimbursements. There is also no tax consequences, as reimbursement for expenses is normally not considered either compensation or income. There is no legal limit as to how much you can collect as reimbursements for expenses incurred. However, if the amounts in question are rather large (say over $1,000 per month), you may have to report the income and offset it by claiming the expenses as employee business expenses using Form 2106. That is unusual, however, and normally comes into play only when the reimbursement is for moving expenses.

Now, if the reimbursement is in fact compensation for other services rendered over and above what you do as an employee for Company A, then that money must be reported as income, probably as self-employment income on Schedule C. Again, there is nothing illegal about this, though working on the side for a client company may violate your employment contract with Company A.

[kanikaram42]

Thanks for your reply. Let me explain you more detailed. I get $1000 every month as expense check from the company B. and there is no bills submission from side too. And my company A is also OK with this kind expense check from company B. Is this OK ?
2)And can I also accept a check directly from company C totally irrelevant with A and B for rendering other services ? Is that legal and if so how do I file tax for that ? While being in H-1B can accept the check from company C and am I eligible to file the tax self employment under schedule C. I am under the impression that schedule C is only for Green card holders or citizens.
3)Is there any tax charged on the Bonus given by my employer. If so what is the percentage of tax ?

Please reply in detail . Thank you very much.

[AtlantaTaxExpert]

Kanikaram42:

In order:

1) If you are paid exactly $1,000 each month for expenses with no expense reporting by you, then the company is using a non-accountable expense plan and is probably paying your expenses on a per diem basis. Under these circumstances, the $1,000 will be subject to income taxes (but probably not Social Security and Medicare taxes). You may be able to offset this additional income by claiming employee business expenses on Form 2106, but that option is available to you only if you itemize, which is difficult if you are not making mortgage payments on a house.

2) Your situation with Company C appears to be a second job. There is nothing illegal about working a second job. If the payment is for contract work, then you will need to file Schedule C to report the income (and the associated expenses to reduce the tax burden) and Schedule SE to report the self-employment taxes. Aliens under the H1B visa may work as independent contractors and file Schedules C and SE.

3) Your bonus is considered salary and is taxed at your normal marginal tax rate (probably 15 - 25%), just like your salary. However, because it is often a large lump sum, the IRS requires a larger-than-normal withholding of 30% on such lump sum payments.