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Housing taxable question

A couple questions:
We have a couple employees that will be doing a research internship. The stipend for the internship covers wages and housing. It is all run through Payroll. We will prepay for their housing, and deduct the housing from their pay.

  1. Would the housing portion of the stipend be considered supplemental wages?
  2. Do you see any issues with deducting the prepaid housing from their pay? I plan on giving them two pay entries, one for wages, one for housing (supplemental wages?), with a deduction for housing.
  3. Would I show the housing anywhere other than wages on their W-2?

-John

Comments

  • David WarrenDavid Warren ✭✭✭✭

    Two unrelated issues.

    • If IRS considers this person to be an intern, then no work as in NO WORK is being done. There are more to the rules then that but that is the first place IRS will look. The intern rules are very clear the any work done must be incidental (pretty much unrelated to the internship.
    • There are housing rules. With few exceptions, housing is taxable. A manager of a housing complex whose job requires them to be on site 24/7 could maybe be non-taxable, but by definition such a person would not be an intern. A big apartment complex could probably discount the apartments 15% under the discount rule.
    • As far as the W2 is concerned a housing allowance is vanilla payroll wages at time of constructive receipt.
  • rrupertrrupert ✭✭✭

    agree with David on all points.

  • Humm - actually, David, I think you are referring to the DOL WHD rules on unpaid internships. Those rules were modified last year to allow unpaid internships that primarily benefit the intern and the NO WORK provisions were relaxed quite a bit to be in conformity with recent court cases.

    Paid interns are typically treated as employees for tax purposes. But these are employees who have been given research grants and the work they will do will also be an internship. So the questions here might be more along the line of whether the deductions from pay for housing create issues with regard to minimum wage and overtime compensation (assuming coverage) and whether the provision of housing is taxable (fair market value v. amount paid by employee), reimbursed employee business expense (travel) or educational expense. Also, I'm not clear on who is granting the stipend and why. That is, why is housing required? Are they being sent someplace to do the research? A foreign country, for example?

    The provision of housing could be supplemental pay if taxable, but it sounds more like regular pay (intern gets paid, employer deducts housing from the pay).

    In any case, I suspect the question regarding supplemental pay is about the 22% optional flat rate - Again, not knowing all the facts, I'm thinking the optional flat rate may not be appropriate in this case, even if allowed.

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