Employee Reimbursements, Form W-2, Wage Inquiries
This is archived information that pertains only to the 2002 Tax Year. If you
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Is tuition reimbursement for school a form of taxable income or not?
If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. You do not have to include the benefits on your income tax return.
To qualify as an educational assistance program, the plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.
Tax-free educational assistance benefits include payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments do not have to be for work-related courses. Educational assistance benefits do not include payments for the following items:
- Meals, lodging, transportation, or tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
- Education involving sports, games, or hobbies unless the education has a reasonable relationship to the business of your employer, or is required as part of a degree program.
- With respect to expenses relating to courses beginning after December 31, in 2005 graduate level courses will qualify for employer-provided educational assistance.
Refer to Publication 553 (PDF), Highlights of 2001 tax changes.
For further information, please see, Publication 508 (PDF), Tax Benefits for Work Related Education. Tax Topic 513 Tax Topic 513, Education Expenses
References: My employer is including my graduate school tuition reimbursements on my Form W-2. Where do I claim education expenses on my Form 1040?
The law changed in 2002 to allow up to $5,250 in graduate school tuition reimbursements to be excluded from gross income. If your employer has included graduate school tuition reimbursements amounting to $5,250 or less with your wages, tips, and other compensation shown in box 1 of your W-2, ask your employer for a corrected W-2. If you have received graduate school tuition reimbursements that are includable in gross income, you may deduct expenses attributable to those amount on Form 1040, Schedule A (PDF), Itemized Deductions.
References: On my Form W-2, why would line 1, wages, tips, other compensation, be different from line 3, social security wages, and line 5, medicare wages and tips?
When the amount in box 1 is less than the amount in boxes 3 and 5, you have received some employee compensation that is not subject to Federal income tax but is subject to Social Security and Medicare taxes. The most common example of this is deferred compensation, e.g. contributions to a 401(k) plan. Another example is an employee benefit plan that provides for the contribution of pretax dollars (e.g. cafeteria plan, flexible spending arrangement, dependent care plan, etc.).
When the amount in box 1 is more than the amount in boxes 3 and 5, you have received some employee compensation that is not defined as wages for the purpose of social security and Medicare taxes. An example of this would be when a child works for his or her parent in the parent's trade or business and is under age 18.
References: Is my employer supposed to include mileage reimbursement as a part of my gross income on my Form W-2, and do I include it on my return as wages, tips & salaries?
That depends on whether you were reimbursed under an accountable plan or under a nonaccountable plan. Generally, an employer will have an accountable plan if it pays business expenses that would otherwise be deductible by the employee, requires the employee to substantiate the expense, and does not permit the employee to keep any reimbursements that exceed expenses. If the employer does not use an accountable plan, mileage reimbursement would be included in your wages on Form W-2. For more information on reimbursements and accountable plans, refer to Chapter 6 of Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses.
If your mileage reimbursement is included in box 1 on Form W-2, you need to enter that amount on the "wages, salaries, and tips" line of your tax return. If you itemize your deductions on Form 1040, Schedule A (PDF), Itemized Deductions, you may deduct the business transportation expense as an employee business expense, subject to the 2% limitation of adjusted gross income. You may usually deduct either your actual business automobile expenses or use the standard mileage rate. For more information on when you may use the standard mileage rate, refer to Chapter 4 of Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses.
References: Is there any amount of wages too low to report on my tax return?
There is no wage amount too low that you would not include in gross income on your tax return. If your total income were below your filing requirement, however, you would not have to file a tax return. However, you may wish to file to claim a refund of withheld taxes. For information on filing requirements, please refer to the instructions for your income tax form.
References: What box on the Form W-2 do I use to determine my income to go on my tax return? What are all of these other boxes for? Does the amount from any other box go anywhere on my tax return?
For most people, only the amount in box 1 (wages, tips, other compensation) needs to be reported as income on your tax return. If you are an employee who receives tips, you may have to include the amount from box 8 (allocated tips) as income on your return.
Any employer-provided dependent care benefits listed in box 10 that are not excludable from income must be reported as wages on line 7 of the Form 1040. Any credit taken for child and dependent care expenses must be reported on line 44 of the Form 1040. Refer to Form 2441 (PDF), Child and Dependent Care Expenses, to determine the amount, if any, of the exclusion or credit.
Employer-provided adoption benefits that must be included on line 18 of Form 8839 (PDF), Qualified Adoption Expenses, appear in box 12 with a code T. Employer contributions to a medical savings account (MSA), which you report on line 3b of Form 8853 (PDF), Medical Savings Accounts and Long-Term Care Insurance Contracts, also appear in box 12 with a code R. Employer-provided benefits may be taxable as compensation under certain conditions. Refer to the relevant form instructions.
If you received advanced earned income credit payments from your employer (box 9), you must include the amount on your individual income tax return Form 1040 or 1040A.
The other boxes either display information that the employer wanted to provide to you, or contain information that must be reported to the Social Security Administration or to the IRS.
References: What is meant by "dependent care benefits" (Box 10 of Form W-2)?
Dependent care benefits are amounts your employer paid directly to either you or your care provider for the care of your qualifying person(s) while you worked. They also include the fair market value of care in a day-care facility provided or sponsored by your employer. Dependent care benefits include amounts placed into a flexible spending account under a salary reduction arrangement if the benefit provided was day care. If you have an amount in Box 10 of the Form W-2 (PDF), you must complete Form 2441, Child and Dependent Care Expenses (PDF) when you file the Form 1040. If you file the Form 1040A (PDF), complete Schedule 2.
References: Should Line 10, Dependent Care Benefits, of my Form W-2 be included when calculating my income?
A portion of the amount in Box 10 of the Form W-2 may be includable in your income. Please refer to the Instructions for Form 2441, Child and Dependent Care Expenses, to determine how much, if any, of the dependent care benefits may be excluded. If you meet the requirements described in Form 2441 (PDF), Child and Dependent Care Expenses, you can exclude up to $5,000 of dependent care benefits provided under a qualified employer plan. However, this amount is reduced or eliminated if your earned income (or your spouse's earned income) is less than $5,000, or if your child is not under age 13. Any benefits that exceed the exclusion limit ($5,000) are also includable in your income, and your employer should have included these amounts in Boxes 1, 3, and 5 of your Form W-2 in addition to reporting these amounts in Box 10. The amount you can exclude is figured and claimed by completing Part III of Form 2441 or Schedule 2 of Form 1040A.
References: Is severance pay taxable?
Amounts you receive as severance pay are taxable. A lump-sum payment for cancellation of your employment contract is income in the tax year you receive it and must be reported with your other salaries and wages. For additional information on wages, salaries, and other earnings, refer to Publication 17 (PDF), Your Federal Income Tax, in Chapter 6, or Tax Topic 401, Wages and Salaries.
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