In some industries, employees are required to bring their own tools to work as a condition of employment. Auto repair shops are a prime example. Employers of such businesses often partake in an “accountable plan” that is designed to allow the employer to compensate the employee for using his own tools, in a manner that is tax free to the employee. To qualify, the expense reimbursement plan must meet a three part test: there must be a “business connection” between the expense incurred by the employee in purchasing the tool, and the service the employee provides to the employer; “substantiation” for the expense, which entails far more than a copy of a receipt; and a provision that any excess paid to an employee above what is substantiated, is returned to the employer. To view the full announcement from the IRS, click here.
IRS Issues Guidance on Tool Plans
On behalf of Law Office of Williams & Associates, P.C. | Feb 14, 2012 | IRS