Announcing Success Budgets - a powerful new feature for remote teams Announcing Success Budgets - a powerful new feature for remote teams Learn more →
Is everyone loving the new work-from-home or remote-first policies that are being rolled out by so many companies? No commute! Work in your pajamas! No doubt there are many benefits to working from home as an employee.
There are also tremendous benefits for the employer. Companies are reducing or even eliminating their office space. Smaller office spaces may mean reduced facility costs. One cost of any office is internet access. Millions of employees require internet access to do their work. So it makes sense that employees are provided internet access at the office.
But what about now? Employees working from home most likely already have internet access. Do employers get to “use” that internet access for free? Many companies are choosing to reimburse employees, partially or in full, for their home internet bill. Employers may be doing this due to legal requirements, a sense of obligation, or as a perk of employment. Whatever the reason, the way the “reimbursement” happens is important financially to both the employer and employee.
Some companies choose to issue a flat stipend. It’s relatively simple to add an extra $50 or $100 on as a stipend to the monthly payroll. Unfortunately, it’s costly to both the employer and employee. This is because the stipend (without an accountable reimbursement plan) is treated as income and income means taxes. Let’s take a look at a hypothetical $100 stipend paid to an employee in Reimbi’s home city of Portland, Oregon.
For the employer, this $100 stipend is actually going to result in a $110.82 payroll payment. That’s because as income it is subject to social security, medicare, unemployment insurance, and any other state or local taxes in the jurisdiction.
That’s a nearly $11 cost for each $100 stipend.
But that’s minor compared to the impact on the employee. The $100 intended as a “reimbursement”? This employee is going to pay $37.75 in taxes and ultimately only receive $62.25.
This is why stipends should not be used to reimburse employees.
The better choice is to process this $100 as a reimbursement with an accountable plan. Now the employee receives the full $100 and the employer pays no taxes on the reimbursement.
Some people may feel it’s a hassle to deal with expense reports for small, recurring reimbursements. However, Reimbi has built a reimbursement solution that specifically addresses home office reimbursements. Employees and employers can realize all the benefits of working from home without the tax penalty of improperly dealing with home internet bills.
Schedule your demo of Reimbi to see how easy and beneficial Reimbi is for companies and their employees.
Reimbursement reimagined with easy expense reporting, required business controls, and fast payouts.
© Reimbi LLC 2017-2021