2013 global relocation conference: payback agreements – how to collect and tax concerns
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Presentation and slides from 2013 Global Relocation Conference by Quentin Hormel.TRANSCRIPT
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Payback Agreements – How to Collect and
Tax Concerns
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What Expenses to Include?
• Taxables, excludables, and business expenses.
• Third-party homesale expenses?• Executive paybacks and Sarbanes-
Oxley? Paybacks do not create a “loan”.
• Payback applied proportionately among expenses.
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Example: Expense Breakdown
• $10,000 excludables
• $1,000 box 12-p excludables
• $15,000 taxables
• $14,000 third party homesale costs
• $40,000 total expenses
• $20,000 payback (50% of total expenses)
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Example: Expense Breakdown
• $5,000 excludables (50% of $10,000)
• $500 box 12-p excludables (50% of $1,000)
• $7,500 taxables (50% x $15,000)
• $7,000 third party homesale costs (50% x $14,000)
• $20,000 payback (50% of total expenses)
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Previous Year Paybacks
• W-2c for year of original reimbursement.
• Do not touch boxes 1-2 on W-2c.• Only adjust boxes 3-6 on W-2c.• Company should refund SS & Med
overpayments and obtain signed affidavit from employee.
• Report adjustment on 941-X or 944-X to recover SS and Med taxes.
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Example: Payback of Previous-Year Expenses
$7,500 taxables (50% x $15,000)
W-2c:
• Total Medicare Wages (Boxes 3 & 5)
-$8,121.28 ($7,500 + SS/Med W/H)
• Soc. Sec. Withholding (Box 4)
-$503.52 ($8,121.28 x 6.2%)
• Medicare Withholding (Box 6)
-$117.76 ($8,121.28 x 1.45%)-
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Previous Year Paybacks
• Employee should not file an amended tax return.
• On current year’s return, an itemized deduction on the Schedule A to retrieve Federal withholding, subject to 2% floor.
• Best not to give guidance to employees – “consult tax advisor”.
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Current Year Paybacks
• Apply adjustments to all earning and withholding boxes for the current year.
• “Wage-offset method” should be followed, not “claim-of-right method”.
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Sources
• IRS Publication 525 (page 33 of 2012 edition) and Publication 17 (pages 83 & 200 of 2012 edition).
• IRS Publication 15 – Circular E (page 34 of 2013 edition).
• Revenue Rulings 67-48 and 79-311.
• Private Letter Rulings 9050053 and 9313015.
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