Page 144 - Essentials of Payroll: Management and Accounting

Compensation
Next in order of priority are Social Security and Medicare taxes on her
tip income, which total $29.84 and leave $56.98 available for the last
deduction, which is the federal income tax withholding on her tip
income. By allocating the remaining $56.98 to her federal income tax

withholding, the company has paid off all her other taxes, leaving her
responsible for $21.02 in unpaid federal income taxes.

Back Pay
Back pay is frequently paid to an employee as part of an arbitration
award, perhaps related to an unjustified termination or an incorrectly

delayed wage increase.Whatever the reason for the back pay, it should
be treated as regular wages for tax withholding purposes.However,some
recent court cases have more tightly defined the types of back pay awards
that are subject to withholding, so consult with a lawyer to determine
the correct treatment.

Business Expense Reimbursements
If an employee submits substantiation of all expenses for which reim-

bursement is requested, then the corresponding payment from the
employer to the employee is not considered income to the employee.
Substantiation can take the following forms:
• A receipt that clearly indicates the amount of the expense.
• Per diem rates that do not exceed the per diem rates listed in
IRS Publication 1542, which itemizes per diems for a variety of
locations throughout the country. If an acceptable per diem rate
is used, then travel, meals, and entertainment expense receipts for
those days do not have to be submitted. If an employee is travel-
ing to or from the home office, then the IRS allows a per diem
on travel days of up to three-fourths of the normal rate.

Meals and entertainment present a special situation from the
employer’s perspective.Only 50 percent of these costs are allowed as tax

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