May 2005 - Tool Service Can Benefit Worker, Employer
By Mandi Harding

April 15 officially closed the 2004 tax season and brought an end of scurrying to identify all possible deductions. Yet this time of year also represents a beginning, in that it is prime time for employers and employees alike to position themselves for optimum results in the 2005 tax cycle.
Investigating new opportunities and translating the legalese of tax codes can prove advantageous in the pursuit of maximizing every penny.
Tool Benefit, Inc., an administrator whose mission is to help companies leverage the financial power of tools through the administration of tax benefits as they relate to employee-incurred tool and equipment expenses, may provide some relief from the taxman. Understanding the difference between non-accountable and accountable plans is the first step.
Bill Phelps, vice president of sales for Tool Benefit, outlines a non-accountable plan:


Consider an employee who earns $40,000 a year and is required to provide hand tools and equipment as a condition of employment. The government recognized this as a dual-pay situation, whereby part of the employeeâs pay is attributed for the time service and skill required, but the remainder is credited to the expense the employee incurs for providing the tools and equipment required to complete the job. In most companies the entire $40,000 appears on the employeeâs W-2 tax form at the end of the year and is subject to all payroll taxes and insurance. This scenario does not prohibit the employee from receiving tax assistance for the expenses associated with the purchase of tools and equipment required as a condition of employment. But it does create a system of challenges. After the employee gathers and delivers his documentation to his tax preparer, the tax preparer is then charged with the burden of assessing the 2 percent floor and ensuring the employee is able to maximize his benefit above the standard deduction through itemization. Additionally, the tax preparer must ensure there is enough savings to cover the fee for filing the schedule. The most common outcome from this type of plan equates to no additional benefits to the employee and additional payroll costs shouldered by the employer.

The Code of Federal Regulations states, ãAmounts treated as paid under a non-accountable plan are included in the employeeâs gross income, must be reported as wages or other compensation on the employeeâs form W-2, and are subject to the withholding and payment of employment taxes.ä
Conversely, Phelps noted, Congress has established accountable plans as an alternative to non-accountable plans. Now, using the same example as before, the employeeâs $40,000 annual salary (equating to $19 an hour) can be apportioned to include $14 per hour for the workerâs time, service and skill, and $5 per hour for tools and equipment, making only the $14 subject to all payroll expenses and taxes, while the tool portion is payment made available through an accountable plan.
The Code of Federal Regulations identifies this tax treatment as, ãAmounts treated as paid under an accountable plan excluded from the employeeâs gross income·are not reported as wages or other compensation on the employeeâs Form W-2, and are exempt from the withholding and payment of employment taxes Federal Insurance Contributions Act (FICA), Federal Unemployment Tax Act (FUTA), Railroad Retirement Act (RRTA), Railroad Unemployment Repayment Tax (RURT) and income tax.ä
The bottom line ö the accountable plan can increase the employeeâs take home pay and reduce expenses for the employer.
Tool Benefit, Inc. acts as one of the administrators of the IRS program outlined in the tax code and can provide several benefits to an employer:

1) Gathering an inventory of the employeesâ tools and or equipment
2) Obtaining applicable personal information
3) Analyzing the inventory to determine fair, accurate and reasonable expenses
4) Providing the hourly tool-rate, and
5) Issuing periodic statements and rate adjustment forms

The program is designed to benefit any employee required to provide tools or equipment on the job.
Phelps highlighted some of the construction trades already using the program. Tool Benefit, Inc. has aided framers, roofers, electricians, plumbers, concrete contractors, masons, stucco contractors, iron workers, drywall hangers and tapers, painters and excavation contractors to name a few.
ãAccountable plan guidelines utilized were established with the Tax Reform Act of 1986 and the Family Support Act of 1988. These guidelines are time tested and proven,ä said Phelps. ãThe inherent benefits to the company are tremendous. On top of controlling employment costs, employers are able to attract highly qualified employees, provide an avenue for tooled employees to acquire updated equipment, decrease employee turnover, improve employee satisfaction and provide more flexibility in the bid process and so on. And the employee benefits include relief from the year end accounting burden and an increase in take home pay.ä
Tool Benefit, Inc. administers the program for more than 500 companies in 31 states. For more information on this program contact Bill Phelps at 800-795-1446.