[dave_mwi]

I received a supplemental increase to my paycheck to cover some expenses that I incurred. I have a couple questions.

From what I understand, the federal rate is 25% for supplemental amounts. Is this in any way augment-able upon filing based upon dependents? And what part of my 1040 does it go on?

Will Social Security and Medicare amounts withheld also increase accordingly? Mine did.

Finally, my overarching question is this - several times I have been 'reimbursed' for some kind of company related activity. These have usually been taxable sums - supplementally. So what happens is this: I'm given a sum of money that has not yet been taxed that covers my expense only before it's been taxed. When it's taxed it no longer covers my out of pocket expense. Is there a better way for my company to do this? Possibly giving me a larger amount such that after taxes it does cover my full out of pocket expense. Could it be indicated is a 'Bonus' for example?

[AtlantaTaxExpert]

Social Security is 6.2%; Medicare is 1.45%.

The supplemental will be added to your salary on your W-2, which is entered on Line #7 of Form 1040.

If supplementals are considered taxable income, most companies typically PLUS-UP the amount to account for the tax.

Another way is to consider the supplementals as CONTRACT income, which is reported on Form 1099-MISC and accounted for on a Schedule C. The expenses are also claimed on the Schedule C, resulting in NO TAX DUE.

[MukatA]

Find out if the reimbursements are under accountable plan or nonaccountable plan. Under accountable plan, it is not reported as income and you can't claim deduction on schedule A under Employee Business Expenses.

Under nonaccountable plan, these are added to your W2 income. This income is also subject to FICA (ss and medicare) taxes. You can deduct these expenses only if you itemize your deductions that is if you file schedule A (Form 1040). And you can deduct only the expenses that are more than 2% of your AGI (adjusted gross income).
Also you will itemize your deductions only if your itemized deductions are more than your standard deduction. Standard deduction is $5,350 for single and $10,700 for Married Filing Jointly.

What ever your employer is holding as federal or state income tax, is not your actual tax. It can be more than or less than your actual tax. You will know your actual tax when you complete your tax return for the year. If withholdings are more than the tax as per the return, you will get a refund.

[AtlantaTaxExpert]

MukatA brings up some good points with which I agree.