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Employee Expense Reimbursement
Generally, payments made under an accountable plan are excluded from the employee's gross income and are not required to be reported on the W2. However, if you pay a per diem or mileage allowance and the amount exceeds the amount treated as substantiated under IRS rules, then you must report the amount of the excess on the W2.
For more information on accountable plans, non-accountable plans, amounts treated as substantiated under a per diem or mileage allowance, the standard mileage rate, the per diem substantiation method, and the high-low substantiation method, see Regulations section 1.62-2, Rev. Proc. 91-67, 1991-2 C.B. 887, Rev. Proc 93-21, 1993-13 I.R.B. 11, Pub. 463, Travel, Entertainment, and Gift Expenses, and Pub. 1542, Per Diem Rates.
This excess amount is subject to income tax withholding, Social Security, Medicare and federal unemployment taxes. In this instance, the amount (non-taxable portion) should be reported in Box 12, using code L.
“Report in box 12 only the amount treated as substantiated (such as the nontaxable part). Include in boxes 1, 3 (up to the social security wage base), and 5 the part of the reimbursement that is more than the amount treated as substantiated.” – IRS.gov W2 Instructions Box 12 Code L
If you have not processed your last payroll:
Enter a payroll adjustment (CADJ) with no check number and no check date with the required Federal, Social Security and Medicare amounts to be withheld on the employee's last paycheck in the year.
While this will take care of the Federal, Social Security & Medicare issue, you still need to adjust gross pay to reflect the addition to total wages.
Enter a payroll adjustment (PADJ) with a check number of 0, the December date of the payroll checks the adjustment will be included with and a check in the PADJ box. This amount will be added to the YTD and QTD figures. The payroll GJ will need to be modified to not debit payroll (997000-50000) and credit cash for this recognized amount.
If you have already processed your last payroll:
You may not have withheld enough Social Security or Medicare. According to Circular E, Section 13 Adjustments, paragraph titled Collecting under withheld taxes from employees, "If you withheld no income, Social Security, or Medicare taxes or less than the right amount from an employee's wages, you could make it up from later pay to that employee. But you are the one who owes the underpayment to the IRS. Reimbursement is up to you and the employee. Under withheld income tax must be recovered from the employee on or before the last day of the calendar year.
A Payroll Adjustment (PADJ) will need to be entered. On the Payroll Adjustment screen, select the employee number, enter 0 for the check number and the date of 12/31/xx. The PADJ box will automatically be checked.
Enter the amounts of the calculated amounts, in the appropriate boxes. Prepare payroll with just the PADJ and no timesheet batch. After reviewing the payroll register, go to Print checks. A message will appear stating there are no checks and ask if you would like to save the check run, answer Yes.
Use the Edit/Prepare W2s tab to enter box 12 information.
This must be done before the Save/Clear step on the Annual menu is done. If this step HAS been done, click on the Edit/Prepare W2 tab, select the employee and edit the information into the W2.
For more information on accountable plans, non-accountable plans, amounts treated as substantiated under a per diem or mileage allowance, the standard mileage rate, the per diem substantiation method, and the high-low substantiation method, see Regulations section 1.62-2, Rev. Proc. 91-67, 1991-2 C.B. 887, Rev. Proc 93-21, 1993-13 I.R.B. 11, Pub. 463, Travel, Entertainment, and Gift Expenses, and Pub. 1542, Per Diem Rates.
This excess amount is subject to income tax withholding, Social Security, Medicare and federal unemployment taxes. In this instance, the amount (non-taxable portion) should be reported in Box 12, using code L.
“Report in box 12 only the amount treated as substantiated (such as the nontaxable part). Include in boxes 1, 3 (up to the social security wage base), and 5 the part of the reimbursement that is more than the amount treated as substantiated.” – IRS.gov W2 Instructions Box 12 Code L
If you have not processed your last payroll:
Enter a payroll adjustment (CADJ) with no check number and no check date with the required Federal, Social Security and Medicare amounts to be withheld on the employee's last paycheck in the year.
While this will take care of the Federal, Social Security & Medicare issue, you still need to adjust gross pay to reflect the addition to total wages.
Enter a payroll adjustment (PADJ) with a check number of 0, the December date of the payroll checks the adjustment will be included with and a check in the PADJ box. This amount will be added to the YTD and QTD figures. The payroll GJ will need to be modified to not debit payroll (997000-50000) and credit cash for this recognized amount.
If you have already processed your last payroll:
You may not have withheld enough Social Security or Medicare. According to Circular E, Section 13 Adjustments, paragraph titled Collecting under withheld taxes from employees, "If you withheld no income, Social Security, or Medicare taxes or less than the right amount from an employee's wages, you could make it up from later pay to that employee. But you are the one who owes the underpayment to the IRS. Reimbursement is up to you and the employee. Under withheld income tax must be recovered from the employee on or before the last day of the calendar year.
A Payroll Adjustment (PADJ) will need to be entered. On the Payroll Adjustment screen, select the employee number, enter 0 for the check number and the date of 12/31/xx. The PADJ box will automatically be checked.
Enter the amounts of the calculated amounts, in the appropriate boxes. Prepare payroll with just the PADJ and no timesheet batch. After reviewing the payroll register, go to Print checks. A message will appear stating there are no checks and ask if you would like to save the check run, answer Yes.
Use the Edit/Prepare W2s tab to enter box 12 information.
This must be done before the Save/Clear step on the Annual menu is done. If this step HAS been done, click on the Edit/Prepare W2 tab, select the employee and edit the information into the W2.
