[KEL15570]

Can an employee receive a W-2 and a 1099. Example is an employee is on payroll, receives salary and expenses through payroll. Currently the employee also receives a net $500 car allowance, so the amount is grossed up. Now the employee has enrolled in 401K and the contribution is deducted from the car allowance.

Can the car allowance be paid through A/P and then the employee is given a 1099 at year end?

Regards,

KEL15570

[AtlantaTaxExpert]

Yes, car allowances can be documented using Form 1099.

[MukatA]

To a W2 employee for the car allowance, the employer should issue W2, and not 1099. Car allowance is a fringe benefit.

If car allowance is added in W2, then the employee can take actual car expenses as itemized deduction on schedule A (Form 1040).
If the employee get 1099, then the employee will complete schedule C (Form 1040), deduct expenses on schedule C, and pay employment taxes at 15.3%. Schedule C is for self employed person.

[AtlantaTaxExpert]

MukatA:

I have seen it done both ways (car allowance on W-2; salary on W-2 and car allowance on Form 1099).

In such a case, the Schedule C is not appropriate In my opinion, as the car allowance is a reimbursement for expenses, NOT nonemployee compensation, and should be reported on Line #21 of Form 1040, and the actual car expenses (or standard milage rate) reported on Form 2106 and Schedule A as an itemized expense.

[Fr_Chuck]

Yes, many companies pay caar and travel alllowances on a 1099 this is a common procedure.

[AtlantaTaxExpert]

Noted!

[soco66]

What about if you have an employee that also acts as a contractor during the off hours, can you give a W2 for the regular work and 1099 for the contracted work, given they are not a corporation?

[AtlantaTaxExpert]

Yes, you can get both Forms W-2 and 1099-MISC. In fact, most people do.

[soco66]

Thanks for your quick answer. Why do some forums suggest the IRS does not like to see from the same company both forms?

[MLSNC]

I know of no IRS rule that says you can not receive a W-2 and a 1099. However, the employer will have a high hurdle to clear to show how one person can be an employee and a contractor. I could see a situation occurring where the work performed under the 1099 was different from the normal job description. For instance an office employee also did the landscaping/mowing after hours.

That being said I do not think that applies in this situation. The employee is receiving a car allowance. If the employee does not document that he spent that back to the employer (generally using mileage reports), then it is an unaccountable plan. With an unaccountable plan the employer is required to withhold income taxes and FICA. The employee then can deduction actual expenses if they itemize and the expenses are subject to the 2% limit.

[AtlantaTaxExpert]

I agree that income tax liability applies for unaccountable plan reimbursement, but not FICA.

That said, the employer could issue the 1099 with the money listed as "other income" in box 3 with no problems from the IRS.

[MLSNC]

You sent me into the books, IRS Pub 15:

Nonaccountable plan. Payments to your employee for travel and other necessary expenses of your business under a nonaccountable plan are wages and are treated as supplemental wages and subject to the withholding and payment of income, social security, Medicare, and FUTA taxes. Your payments are treated as paid under a nonaccountable plan if:

Your employee is not required to or does not substantiate timely those expenses to you with receipts or other documentation,

You advance an amount to your employee for business expenses and your employee is not required to or does not return timely any amount he or she does not use for business expenses,

You advance or pay an amount to your employee regardless of whether you reasonably expect the employee to have business expenses related to your business, or

You pay an amount as a reimbursement you would have otherwise paid as wages.

[AtlantaTaxExpert]

I cannot argue the citation that states FICA taxes are due. However, employers routinely ignore this requirement, pay the reimbursement, document it with Form 1099, and the IRS allows it.

I am not saying this is correct; I am saying that that is what happens routinely.

[sdavisp]

Stephanie D. Davis

[sdavisp]

Hi, my name is Stephanie D. Davis. I would like to get my W-2 form from GDOL unemploment.

[AtlantaTaxExpert]

Stephanie,

It is NOT a W-2; it is Form 1099-G.

Go to the Georgia Department of Labor website. You should be able to download the form from there.