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Travel Allowance in lieu of mileage reimbursement.

Hello,
This just came across my screen. My employer would like to give an employee a travel allowance in lieu of them needing to submit mileage reimbursement forms monthly. I know this is taxable, but would it be considered supplemental wages? If so, it will be separated from their normal wages, so would this be best to do at the Supplemental rate? Would this need to be coded for the W-2's?

Thank you,

-John

Comments

  • Based on your description, it is probably supplemental wages. If the employee is paid monthly and gets the same amount of travel allowance each month regardless of actual travel, then it may well be regular pay - that is, a regular salary that is allocated, in part, to "travel advance". If paid separately, it is supplemental wages. You can use the optional flat rate of 22% provided tax was withheld from the employee's regular pay at some time within the current calendar year or the immediately preceding calendar year. If that was not the case, then the aggregate method must be used unless the mandatory flat rate applies to the payment. However, depending upon the size of the allowance, aggregating the allowance with the regular pay to compute the withholding will likely result in more accurate withholding unless the employee's marginal tax rate is 22%. I don't know how much trouble the expense reports are, but reimbursing actual expenses under an accountable plan results in a tax savings for both the employer and employee as the benefit is excluded from the employee's income.

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