Masonry Magazine May 1971 Page. 21
Taxes
(Continued from page 12)
Are such payments taxable to the employee and deductible by the employer? Are such payments considered to be wages and thus subject to Federal withholding and other employment taxes?
A company usually sets up a plan to accomplish this form of employee benefit. An employee will be required to submit an application to the company for approval-setting forth the name of the courses he hopes to take. Most of these plans do not pay for any expenses above the tuition-such as expenses for books and transportation. Such a tuition refund plan will set limits on the number of courses that can be taken at any one time.
Although the IRS has not ruled on the specific point of an employer's right to deduct reimbursement of an employee's educational expenses it is generally believed that the employer is able to deduct the reimbursement as a business expense, i.e., compensation paid. One word of caution is that in cases of closely-held corporations, the Commissioner will be watching to see if the employer and employee have dealt at arm's length. Otherwise, the reimbursements might be regarded as a dividend.
From the employee's point of view, educational costs are deductible if the courses were undertaken for the purpose of maintaining or improving skills required in his employment or other trade or business. These would include refresher courses or courses dealing with new developments in a person's field. Education costs are also deductible if they are for meeting the express requirements of an employer, or, the requirements of applicable law or regulations imposed as a condition to the retention by the employee of an established employment relationship, status, or rate of compensation. It would be wise in the case where an employer requires an employee to take particular education courses that the employee obtain from the employer a signed statement stating that such education was undertaken to maintain or improve skills required in his job. This statement, or a copy of it, could then be submitted with the employee's Federal income tax return.
However, if the education undertaken does not fit into either of these two categories, then the employee cannot deduct these expenses. Such reimbursements would then be regarded as compensation to the employee and he must include them in his net income.
SELF-EMPLOYMENT TAX
An accountant did not pay any self-employment taxes on his income in 1966. He did this on the theory that by the end of 1966 he would have paid self-employment taxes in excess of 40 consecutive quarters, thus, achieving the status, he argued in the Tax Court, of "a fully insured individual" as defined in the Social Security Act.
Unfortunately for many, the Tax Court found the accountant's argument to be without merit. "Taxpayer's contention finds no support in any provision of the Internal Revenue Code, in any regulation of the Commissioner, in any Congressional report, or in any provision of the Constitution," was the opinion of the Court. Steiner v. Commissioner, 55 TC No. 94.
ESTIMATED TAX
Since 1969 the IRS furnishes taxpayers with an "Estimated Tax Declaration-Voucher for Individuals," Form 1040-ES, which consists of four payment vouchers. Thereafter the IRS will not notify a taxpayer when each installment is due. The taxpayer must compute and pay the tax each time as it becomes due.
In general, the IRS sends these payment vouchers only to those who have previously filed estimated tax payments or whose last-filed return indicated that estimated tax should be paid or to some taxpayers simply out of a clerical error.
Briefly, a declaration of estimated tax must be filed if the estimated tax is $40 or more and 1) your estimated gross income for 1971 includes more than $200 in income not subject to withholding or if you are a single person and your estimated gross income exceeds $5000, or if you are a married person entitled to file a joint return and your estimated gross income exceeds $5000 and the combined estimated gross income of you and your spouse exceeds $10,000.
Changes in income or in exemptions may occur subsequent to the filing of the declaration of estimated income on April 15, 1971 that would necessitate a taxpayer's amending his original declaration. In some cases, the need to file a declaration for the first time may arise after April 15, 1971. If such a change occurs after April 1, 1971 and before June 2, 1971, then the declaration is due to be filed on June 15, 1971, the date the second installment is due. And, again if the change occurs after June 1, 1971 and before September 2. 1971 then the time for filing a declaration or an amended declaration would be September 15, 1971 and so on. Whenever the estimated tax is figured then it should be paid in equal installments on the remaining payment dates.
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