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Job Interview expense-reimbursement taxable?

Home Tax Reduction Job Interview expense-reimbursement taxable?

  • Avatar AR 
    Participant
    Status: Physician
    Posts: 786
    Joined: 03/10/2016

    OK, Company A has an open position and Dr. X applies.  They talk and then they invite Dr X for an in person interview.  They fly Dr. X out and pay for accommodations.  Total cost of this is $1000. In the end, Dr. X decides to work elsewhere. So you’re saying that Company A needs to send Dr. X a 1099 for $1000. Is that correct?  If so, has anyone ever received a 1099 in this scenario?

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    Please don’t shoot the messenger, but that’s correct. Whether Company A will send the 1099 or not may be a different matter, and whether Dr. X chooses to report that income without a 1099 is up to Dr. X, but we have already experienced this with clients. Regardless, the $1k is taxable to Dr. X. As to how Dr. X will know what Co. A spent on her without a 1099, I don’t think that is something Congress considered.

    2018 was only the 1st year of this being in effect and it usually takes awhile for compliance within affected businesses to catch up. But I expect to see more and more 1099’s or find the income included on W2’s should the prospect become an employee.

    This is an area I really hope they relax the rules on.

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    I believe you, but I guess I still don’t get why this type of expense is different from any other business expense where the company sends an employee somewhere.    Take the following example.

    X work as a W2 employee for Company A in Chicago.  X needs to attend some meetings in person at the New York office.  Company A flies X from Chicago to New York and back.  I assume here the cost of the flight is not reportable income for X.  Is that correct?

    Now imagine Y lives in Chicago and applies for a job with company A.  Y meets with people in the Chicago office.  That goes well and they say that Y needs to go for a second round of interviews in the New York office.  Company A flies Y from Chicago to New York and back.   Company A then hires Y who proceeds to work for them in Chicago.  In this scenario, you’re saying that the flight is definitely reportable income that could appear on a W2.   Is that correct?

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    With all due respect – and I mean that sincerely as I know you’re a lot sharper than I am – I don’t understand why this is so difficult to understand.

    • In your first example, the company is paying expenses for an employee. It is considered an ordinary and necessary cost of doing business.
    • In your 2nd example, the company is paying expenses for a non-employee who is job hunting. Job-hunting expenses are no longer deductible. This is considered a job-hunting expense and it is taxable compensation – no matter who pays for the flight.

    It is no different than a company paying for a moving truck to move the doctor after the doctor becomes an employee. Moving expenses are no longer deductible. If the company pays the expenses on behalf of the employee they are taxable whether the company gives the employee a check or writes the check to the moving company.

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    Yes, I get all that but in the second example if the expenses are for a non-employee, then how can they appear as income on a W2.  W2’s by definition are employee income.  So, that should be impossible, right?

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    Not impossible at all if the prospective employee is hired.

    This is all theoretical and assuming the exact fact pattern and employer compliance. But, of course, if the prospective employee is hired, the employer’s tax/payroll preparer could choose to include the reimbursement on the initial W2 if they occur in the same year.

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    Yes, definitely theoretical, but I think we’re getting to the part I don’t understand.

    If it’s reported on a W2 it would seem to me that by definition it is an employee expense.

    But if it is an employee expense, then as you say:

    the company is paying expenses for an employee. It is considered an ordinary and necessary cost of doing business.

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    Which should imply that it doesn’t need to be on the W2 since it is an expense for an employee that is a necessary cost of doing business.

    So, then one would argue, “well they weren’t an employee at the time”.

    To which the response is, “well if they weren’t an employee at the time, then it can’t go on a W2, because for that’s only for employees.”

     

    It certainly seems like there is a contradiction in there somewhere.   But I suppose it would not be the first time part of the tax code didn’t make sense to me.

    #228556 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2573
    Joined: 09/18/2018

    “expense for an employee that is a necessary cost of doing business.”

    What work was performed? If you were selling something, that was defined as business purpose. Interviews were defined as seeking employment. Specifically addressed in the previous tax law and in the current tax law. One can argue if you wish. And you can lose as well. It’s just pleasant for the IRS to win those disagreements,

    #228607 Reply
    Avatar AR 
    Participant
    Status: Physician
    Posts: 786
    Joined: 03/10/2016

    “expense for an employee that is a necessary cost of doing business.”

    What work was performed? If you were selling something, that was defined as business purpose. Interviews were defined as seeking employment. Specifically addressed in the previous tax law and in the current tax law. One can argue if you wish. And you can lose as well. It’s just pleasant for the IRS to win those disagreements,

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    I don’t think you get the problem here.

    I’m not saying that it shouldn’t be counted as income.  I’m saying I don’t understand how it could ever show up on a W2.  1099 makes sense.  W2, I just don’t understand.

    Your quote above basically explains why putting it on a W2 doesn’t seem to make sense.

    #228613 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
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    Which should imply that it doesn’t need to be on the W2 since it is an expense for an employee that is a necessary cost of doing business. So, then one would argue, “well they weren’t an employee at the time”. To which the response is, “well if they weren’t an employee at the time, then it can’t go on a W2, because for that’s only for employees.”   It certainly seems like there is a contradiction in there somewhere.   But I suppose it would not be the first time part of the tax code didn’t make sense to me.

    Click to expand…

    I see exactly what you’re saying, but business owners and their tax professionals aren’t always so exacting. Another example would be paying a signing bonus to a resident who is still in training. Sometimes the bonus is reported on a 1099, sometimes on a W2.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #228625 Reply
    jfoxcpacfp jfoxcpacfp 
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    Which should imply that it doesn’t need to be on the W2 since it is an expense for an employee that is a necessary cost of doing business. So, then one would argue, “well they weren’t an employee at the time”. To which the response is, “well if they weren’t an employee at the time, then it can’t go on a W2, because for that’s only for employees.”   It certainly seems like there is a contradiction in there somewhere.   But I suppose it would not be the first time part of the tax code didn’t make sense to me.

    Click to expand…

    I see exactly what you’re saying, but business owners and their tax professionals aren’t always so exacting. Another example would be paying a signing bonus to a resident who is still in training. Sometimes the bonus is reported on a 1099, sometimes on a W2.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #228626 Reply
    Avatar StateOfMyHead 
    Participant
    Status: Advanced Practice Provider
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    I’m sure they will eventually catch up and employers will start 1099-ing if they haven’t already. Hopefully those job hunting are aware because incurring the costs of travel for a job you wanted and didn’t get would suck. I think I would prefer to book and pay for my own accommodations. Any chance of these changes being repealed? Despite the larger across the board deduction it blows my mind that we can no longer write off legitimate non-reimbursed business expenses as an employee.

    #228635 Reply
    jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
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    Any chance of these changes being repealed?

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    Always. Of course, the loss of employee business expenses in general does not affect many physicians b/c the 2% floor cut off the majority of the deductions. This change makes accountable plans for employees all the more valuable – good negotiation item to consider.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #228637 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2573
    Joined: 09/18/2018

    Checks are cut on an accounts payable vendor master.
    The tax status isn’t on the check. May, June September you get interview, signing bonus, and relo checks. You are coded as “vendor 1099”. Start work October 1 and now you are coded as “employee”. When Year end reports are ran, it picks up all payments as employee, thus w-2.
    If the institution set up a “new vendor number” Whalen you became employed, you get both 1099 and W-2.
    Payroll reporting is one of the most complex but high impact systems and is often outsourced or a specialized system that is integrated for legal and financial reporting purposes. Expense reporting and vacation pay and accruals and benefits are several examples.

    The requirement is reporting taxable income, not which form once a year. 1099 is easier, no screwing around with tax withholding and payments to fed, state, and local.
    Would it be reasonable for an interviewee to pay unemployment insurance to the state? I mean in jest, you had gross receipts conducting business at the location. The definition of taxable is rather clear. Miscellaneous income is taxed differently than earnings.
    If it’s on a 1099 or w-2, income tax is payable. Does it matter?

    #228644 Reply
    Avatar AR 
    Participant
    Status: Physician
    Posts: 786
    Joined: 03/10/2016

    Which should imply that it doesn’t need to be on the W2 since it is an expense for an employee that is a necessary cost of doing business. So, then one would argue, “well they weren’t an employee at the time”. To which the response is, “well if they weren’t an employee at the time, then it can’t go on a W2, because for that’s only for employees.”   It certainly seems like there is a contradiction in there somewhere.   But I suppose it would not be the first time part of the tax code didn’t make sense to me.

    Click to expand…

    I see exactly what you’re saying, but business owners and their tax professionals aren’t always so exacting. Another example would be paying a signing bonus to a resident who is still in training. Sometimes the bonus is reported on a 1099, sometimes on a W2.

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    The signing bouns example makes more sense because (presumably) a contract is signed and some sort of formal employment relationship is established prior to receipt of the signing bonus.

     

    Actually while we’re going down this road, here’s something else I wondered related to the whole “same as a friend paying” idea that was mentioned above.

    Can the interview expenses be considered a gift?  As far as the prospective employer is concerned, there really aren’t any strings attached.  The prospective employee can accept or decline the offer.   The interview needs to happen either way.   I’m sure the answer is that it can’t be considered a gift.   My questions is why exactly does it fail to meet the requirements of a gift.   The only thing I can come up with is that the employer is benefiting from it.  Maybe that’s enough.

    #228874 Reply
    Avatar AR 
    Participant
    Status: Physician
    Posts: 786
    Joined: 03/10/2016

    I’m sure they will eventually catch up and employers will start 1099-ing if they haven’t already. Hopefully those job hunting are aware because incurring the costs of travel for a job you wanted and didn’t get would suck. I think I would prefer to book and pay for my own accommodations. Any chance of these changes being repealed? Despite the larger across the board deduction it blows my mind that we can no longer write off legitimate non-reimbursed business expenses as an employee.

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    Bolded seems odd. Do you think that you could find cheaper transportation and accommodations than the tax you would pay on what the employer comes up with?  I’m sure it’s possible, but I think it would be pretty difficult in most cases.

    #228876 Reply
    jfoxcpacfp jfoxcpacfp 
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    Can the interview expenses be considered a gift?  As far as the prospective employer is concerned, there really aren’t any strings attached.  The prospective employee can accept or decline the offer.   The interview needs to happen either way.   I’m sure the answer is that it can’t be considered a gift.   My questions is why exactly does it fail to meet the requirements of a gift.   The only thing I can come up with is that the employer is benefiting from it.  Maybe that’s enough.

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    Not a gift because there are strings attached, just not the strings you are thinking about. The doctor must agree to come to the prospective employer’s place of business and go through a job interview in exchange for a free plane ticket, hotel, etc.

    If the prospective employer were to offer to pay for travel for the doctor’s whole circle of friends to accompany him/her, it would be a gift to them and those expenses would be nondeductible to the employer.

    We’re really stretching our imaginations here…

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #228934 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 2573
    Joined: 09/18/2018

    @ar,
    You deserve kudos in pushing the limits in tax planning.
    Not all shades of gray are the same. Claiming a deduction is not illegal by any means. Usually, IF it is questioned the result is tax is assessed with interest. Your creativity is tremendous. It makes me curious regarding the past deductions you rationalized.

    Just one point, the IRS proves nothing. No responsibility for proving or explaining any reasoning. Just, deduction denied and taxes assessed.

    “My questions is why exactly does it fail to meet the requirements of a gift.”

    That means you have to prove it was a gift and thus exempt from tax. Ahh, documentation!

    I suppose one could ask for a letter that supports the interview expenses are really a gift. I mean charities send thank you letters and receipts but that might result in some interesting discussions in the interview process or at least a side eye. Just keep it in the gray area.

    #228960 Reply
    Avatar AR 
    Participant
    Status: Physician
    Posts: 786
    Joined: 03/10/2016

     

    Can the interview expenses be considered a gift?  As far as the prospective employer is concerned, there really aren’t any strings attached.  The prospective employee can accept or decline the offer.   The interview needs to happen either way.   I’m sure the answer is that it can’t be considered a gift.   My questions is why exactly does it fail to meet the requirements of a gift.   The only thing I can come up with is that the employer is benefiting from it.  Maybe that’s enough.

    Click to expand…

    Not a gift because there are strings attached, just not the strings you are thinking about. The doctor must agree to come to the prospective employer’s place of business and go through a job interview in exchange for a free plane ticket, hotel, etc.

    If the prospective employer were to offer to pay for travel for the doctor’s whole circle of friends to accompany him/her, it would be a gift to them and those expenses would be nondeductible to the employer.

    We’re really stretching our imaginations here…

    Click to expand…

    This is all really a theoretical exercise to me, but I do find it interesting.

    Anyway, as far as bolded is concerned, I know when I was inteviewing for jobs a long time ago, almost all of them bought a plane ticket for my spouse to come too.  Obviously no additional cost for accomodations.   So if this happened today, would the ticket for spouse be considered a gift.

    Also, we’re straying way off topic with this one, but while we’re on the topic of gifts from businesses,  I know that sometimes practices will send things like gift baskets at the end of the year to referring doctors offices presumably as a thank you for sending referrals (no one ever explicitly states this, but everyone knows what it is for).  As these are “gifts” are they non deductible expense to the employer?  Or are they considered not really “gifts” and some sort of business expense.  Also if they are business expenses, then should the recipient claim them as income?  My understanding is that when this happens the giver generally just considers it a business expense and the recipient just treats it as a gift.

    #229111 Reply
    Avatar AR 
    Participant
    Status: Physician
    Posts: 786
    Joined: 03/10/2016

    @ar,
    You deserve kudos in pushing the limits in tax planning.
    Not all shades of gray are the same. Claiming a deduction is not illegal by any means. Usually, IF it is questioned the result is tax is assessed with interest. Your creativity is tremendous. It makes me curious regarding the past deductions you rationalized.

    Just one point, the IRS proves nothing. No responsibility for proving or explaining any reasoning. Just, deduction denied and taxes assessed.

    “My questions is why exactly does it fail to meet the requirements of a gift.”

    That means you have to prove it was a gift and thus exempt from tax. Ahh, documentation!

    I suppose one could ask for a letter that supports the interview expenses are really a gift. I mean charities send thank you letters and receipts but that might result in some interesting discussions in the interview process or at least a side eye. Just keep it in the gray area.

    Click to expand…

    I think you’re reading me all wrong.  It’s just a theoretical exercise.  The deductions I claim on my own taxes are extremely vanilla. Nothing even remotely pushing the envelope.  The chance of me interviewing for another job is ~0 in the foreseeable future, and I’m not in a position to hire people either, so the info in this thread has zero practical value for me.   My interest is completely academic.

    #229112 Reply
    Liked by jfoxcpacfp
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7737
    Joined: 01/09/2016

     

    Can the interview expenses be considered a gift?  As far as the prospective employer is concerned, there really aren’t any strings attached.  The prospective employee can accept or decline the offer.   The interview needs to happen either way.   I’m sure the answer is that it can’t be considered a gift.   My questions is why exactly does it fail to meet the requirements of a gift.   The only thing I can come up with is that the employer is benefiting from it.  Maybe that’s enough.

    Click to expand…

    Not a gift because there are strings attached, just not the strings you are thinking about. The doctor must agree to come to the prospective employer’s place of business and go through a job interview in exchange for a free plane ticket, hotel, etc.

    If the prospective employer were to offer to pay for travel for the doctor’s whole circle of friends to accompany him/her, it would be a gift to them and those expenses would be nondeductible to the employer.

    We’re really stretching our imaginations here…

    Click to expand…

    This is all really a theoretical exercise to me, but I do find it interesting.

    Anyway, as far as bolded is concerned, I know when I was inteviewing for jobs a long time ago, almost all of them bought a plane ticket for my spouse to come too.  Obviously no additional cost for accomodations.   So if this happened today, would the ticket for spouse be considered a gift.

    Also, we’re straying way off topic with this one, but while we’re on the topic of gifts from businesses,  I know that sometimes practices will send things like gift baskets at the end of the year to referring doctors offices presumably as a thank you for sending referrals (no one ever explicitly states this, but everyone knows what it is for).  As these are “gifts” are they non deductible expense to the employer?  Or are they considered not really “gifts” and some sort of business expense.  Also if they are business expenses, then should the recipient claim them as income?  My understanding is that when this happens the giver generally just considers it a business expense and the recipient just treats it as a gift.

    Click to expand…

    Re: the wife – it w/b included on the 1099 or theoretical W2.

    Re: the gifts – businesses are limited to a deduction of $25 per person per year. This amount obviously has not kept up with inflation and is highly criticized by tax pro’s. To be blunt: it’s ridiculous. No comments on my “absolute” compliance with clients – there are some ways to stretch based upon our dual business setup and other factors. And I would get a tattoo on my sun-wrinkled humerus before I would give a client an expensive gift and then send them a 1099 or add to their taxable income when preparing a return.

    As for whether they can be a business expense otherwise, there is latitude on whether an expense is truly a gift or “advertising” to gain more clients and I’ll leave it at that. This is a topic to discuss with your CPA as I’m about to start billing you😎.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #229129 Reply
    Liked by Dreamgiver

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