cash advances and failure of submitting expense reports

mhees10076

We have an officer in the company that has received numerous cash advances and has failed to submit expense reports. He is now resigning. Can we deduct from wages owed the amount that was given to him in the form of cash advances since he has never turned in expense reports? Thanks to all for all of your past help. Marlene

LindaS

Did you have the person sign any type of agreement when he received the advances? In my experience you cannot deduct from an employee's pay without having a signed authorization in hand. I would sit the employee down and discuss the situation with him. Have an authorization form ready for him to sign and if he refuses, you can go through legal channels to get reimbursement. I am always leary about deducting from an employee's check without the authorization signed.

jimlegal

Do yourself a favor, do not deduct from the employee's pay check. As tempting as it may seem, without written authorization you maybe creating more problems than you bargained for. Speak with the employee about the situation. If you cannot work something out, get your company's attorney involved. Good luck...

Pixie

If an employee fails to submit receipts for advances, you should add the amount advanced to the employees W2 taxable earnings. The money advanced becomes taxable income to the employee


Amounts not substantiated or excess amounts not returned within a reasonable time are subject to employment taxes.

If an employee does not substantiate expenses within a reasonable time, or if excess reimbursements are not returned within a reasonable time, employers must treat the amounts as wages. Employment taxes must be withheld at the first payroll period following the expiration of a reasonable amount of time. Federal income tax withholding may be computed as if the reimbursement were a supplemental wage payment, so long as the reimbursement or advance was paid separately or identified separately.

IRS tests establish a reasonable amount of time.

The IRS has issued safe harbor tests to establish a reasonable amount of time. In most cases a reasonable amount of time for an employee
to substantiate expenses or return excess payments is determined on a case-by-case basis. However, the IRS has established two safe
harbor tests that may be used to determine a reasonable amount of time under an accountable plan (.04):

(1) The following fixed time periods will be found reasonable by the IRS:

¨ Advance payments made no more than 30 days before an employee incurs expenses;
¨ expenses that are substantiated within 60 days after they are incurred or paid; and

¨ excess payments that are returned to the employer within 120 days after being incurred or paid.

(2) A reasonable period of time will be established under IRS rules if the employer issues periodic statements to employees at least quarterly about unsubstantiated expenses or unreturned excess payments. Employees must substantiate the expenses or return excess payments within 120 days of the statement.