Another internship related tax question

[NotSoFair]

Hello,

DS interned over the summer, his housing and relocation expenses were paid by the company. I am looking at his last pay stub and it has an entry called 'Relocation Supp Tax Gross up' of over $13K. Sounds crazy to me, as they have withheld fed, state, SS and medicare taxes on this amount as well. Is this normal or is there a loophole somewhere that he can make use of?

Thank you.

[mwcpa]

not enough facts are presented.

but, if the amounts covered by the company are "taxable" and as I believe you asked in the past, if his job was a temporary job away from home, he may be able to deduct some of his living expenses while away.

from IRS www.irs.gov/publications/p463/ch01.html#en_US_2012_publink100033764

"Temporary Assignment or Job

You may regularly work at your tax home and also work at another location. It may not be practical to return to your tax home from this other location at the end of each work day.

Temporary assignment vs. indefinite assignment. If your assignment or job away from your main place of work is temporary, your tax home does not change. You are considered to be away from home for the whole period you are away from your main place of work. You can deduct your travel expenses if they otherwise qualify for deduction. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less.
However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than 1 year.
If your assignment is indefinite, you must include in your income any amounts you receive from your employer for living expenses, even if they are called travel allowances and you account to your employer for them. You may be able to deduct the cost of relocating to your new tax home as a moving expense. See Publication 521 for more information. "

If the moneys/taxable benefit were grossed up to cover the tax then he should be "okay" for tax purposes.

[NotSoFair]

not enough facts are presented.

Last year he claimed the travel expenses per the above link as a business expense as he was given a 1099.

This year, different company, he is on W-2. Can he still claim those expenses? Internship was out of state (away from tax home) and temporary (for 3 months).

If the moneys/taxable benefit were grossed up to cover the tax then he should be "okay" for tax purposes.

Although it is 'grossed up', he was not paid the amount. Only his taxes almost doubled.

Thank you for the reply.

[mwcpa]

". Can he still claim those expenses? Internship was out of state (away from tax home) and temporary (for 3 months)."

Yes, itemized deduction on form 2106, subject to 2% AGI limits.

"Although it is 'grossed up', he was not paid the amount. Only his taxes almost doubled."

While he was not paid the amount he was given a taxable benefit...

Example...

My employer pays my rent totaling 3000.... they gross it up to 5000 and take 2000 toward FICA/Medicare and income taxes....

While I did not get a check for 3000 they paid my rent and I would have needed to earn 5000 to be able to do that...

In this case I may be able to deduct the 3000 in rent as a 2106 expense.

[NotSoFair]

Thank you. Travel, accommodation, utilities, maid service everything was paid directly by the employer, so he doesn't know what the actual expenses were. But I am sure it wouldn't cost him $4,500 a month even before tax if he paid it out of pocket.

I am assuming he can use per diem in this case? I don't know if itemizing would help him as 2% of AGI would only come to about $575. He doesn't have anything else to itemize.

Thank you.

[taxref]

The standard deduction for a single person (I speak internet haltingly, and am assuming DS means your son) for 2013 is $6,100. Consequently, he would have enough to itemize.  Don't forget to include on Schedule A any state income tax, in addition to the job expenses.  

While per diem allowances can be used, it sounds as though he would be better off claiming actual expenses.  If he can get a detailing of those costs from the employer, he would be able to figure out which way is best for him.

[NotSoFair]

Yes, DS is my son.

Took a detailed look at Schedule A, he may be better off itemizing. He is trying to get the details of expenses from HR, hope that works out.

Thank you very much for the advices.

[NotSoFair]

DS got his W2. The "Relocation Supp Tax Gross-up" is $14785.12 and there is a "Relocation offset" of $9273.79 under year-to-date deductions. The amount in box1 is a sum of what he was actually paid (gross) + $14785.12. He also got a summary of relocation expenses from the employer which totals to only $9371.90. In the email from the employer is this:

Attached is a summary of your relocation expenses.

The government considers some relocation benefits to be taxable income to you, so as the invoices are paid to you or to third party by <third party>, the amounts are forwarded to <employer> Payroll to be included in your pay stubs as income. For supplemental gross up, <employer> paid for the taxes, however these are included as income to you.

In your pay stubs, under Earnings are the Gross Amounts.
Under After Tax Deductions are the Net Amounts paid to you and other party.
Difference between Gross Amounts and Net Amounts are taxes.

The Internal Revenue Services website (www.irs.gov) has Publication 521 on relocation which you may find helpful.

Although this implies only a portion is taxable, they have collected SS, Medicare taxes on the full amount. Also, they are directing him to publication 521 which is for claiming moving expenses. Should he go back to them and ask for a complete list for $14785.12 or how does this work? Can he still itemize claiming some as business expense or does he claim this as moving expense or a combination? I was planning to do his taxes using TT.

Thank you for helping.

[mwcpa]

the "expenses" provided by the employer are more than likely treated properly and they "grossed" up the benefit (properly).

 If the net amount is a deduction it may be claimed as such (properly classified as moving, if the rules are met or maybe "temporary living" if those rules are met).

[NotSoFair]

I am sorry, I am still not clear. May be the attachment will help.




In this case, would he be claiming $9273.79 (that is the relocation offset on the right side of the image) on line 21 (Unreimbursed employee expenses) of Schedule A?

Can he also claim per diem for meals and incidental on form 2106EZ?

Thank you again.

[mwcpa]

yes.... the 9273.09 related to the "benefit" he was given for rent/travel/what ever, since this was a temporary assignment is a 2106 expense...

[NotSoFair]

Thank you very much.