Practitioners’ questions are answered by a payroll and tax consultant who also is an enrolled agent licensed to practice before the Internal Revenue Service.
Question: Many of our employees are working from home during the Covid-19 crisis. This has been going so well that management is considering reducing the company’s physical footprint by making teleworking a matter of practice for some of employees. Does an employer have a responsibility to reimburse employees for business expenses incurred while working at home?
Answer: There are additional costs to the employee working from home that would not be incurred when working at the employer’s facility.
Such costs could be directly traceable to work performed for the employer, such as printer paper and cartridges, special equipment, or a requirement for dedicated internet access. There also might be indirect costs to consider, such as an increase in the employee’s electric bill related to the use of equipment, lights, and air conditioning related to teleworking.
Other considerations include the use of personal resources, such as home internet and personal phone, that would benefit the employer even when there is no additional cost to the employee. In such instances, the employer is relieved of some of the costs it would otherwise incur through use of resources paid for by the employee.
The Fair Labor Standards Act does not require reimbursement of business expenses incurred by the employee on the employer’s behalf. However, the employer may not require a nonexempt employee to pay or reimburse the employer for expenses that reduce the worker wages below minimum wage or required overtime compensation. The employer also may not require nonexempt employees to pay for items if teleworking is because of a disability or for reasonable accommodations.
Some states require that employees be reimbursed for expenses incurred on behalf of the employer. The reason: The employer should not be unjustly enriched by taking advantage of the employee’s resources. When additional costs, such as electricity, pens, and paper clips are incurred, the employer may have to reimburse those costs. Other issues also must be considered, including data security, whether employer provided equipment is additional compensation, and the tracking of hours worked.
For more information, search for websites using the phrase “telecommuting best practices for employers.”
Question: One of our employees submitted a W-4 with a handwritten request in the space below Step 4(c) to withhold 25% for Social Security tax. Is this valid?
Answer: Form W-4, Employee’s Withholding Certificate, would be considered invalid if it contained unauthorized changes or additions. One example is alteration of the perjury-related information in Step 5 of the 2020 W-4 by eliminating language that is to certify the correctness of the form. The International Revenue Service’s Publication 15, (Circular E), Employer’s Tax Guide, states that the intent of an employee who writes “exempt” in the space below Step 4(c) and also checks the box in Step 2(c) or enters numbers for Steps 3 or 4 is inconsistent, unclear, and ambiguous, making the form invalid.
From your question, it is unclear what the employee is requesting. For example, the request might be for the employer withhold 25% for Social Security or might be to withhold 25% in addition to the 6.2% that already is withheld for Social Security.
A request on Form W-4 to have 25% withheld for Social Security tax is problematic: employees may not designate that a particular percentage be withheld from pay. Such a claim fails to take into account the graduated income tax and withholding rates and may fail to withhold sufficient tax.
Form W-4 is used to determine the amount to withhold based on the employee’s estimated income tax liability and has nothing to do with Social Security or Medicare withholding. The amount of income tax withholding is an estimate. For Social Security tax the withholding rate is fixed at 6.2% and is the actual amount of tax.
An exception would be when an employee has more than one job and the total wages for the year exceeds the Social Security wage base, which would result in an overcollection of the tax. In this case, the excess Social Security tax withheld would be applied as a credit toward the employee’s income tax liability.
While requesting that a certain percentage be withheld is not allowed, the employee may be able to approximate the desired withholding by requesting additional income tax withholding in Step 4c of the 2020 W-4. In the case of self-employment tax, income tax withholding can be used as credit toward self-employment tax on the employee’s tax return in lieu of the employee making quarterly estimated tax payments.
The employee should submit a new W-4, perhaps with the help of a tax professional. The employee also can access the IRS’s Withholding Tax Estimator to complete a new form.
By Patrick Haggerty
Do you have a question for Payroll in Practice? Send it to email@example.com.