Please read on to see how much both you and your employer could save on taxes by agreeing to work for less pay in exchange for having your employer pay for these items.
To keep things simple, lets suppose these expenses average $100 per month and you are in the 15% federal and 5% state tax bracket. If you agree to lower your paycheck by $100 per month, your net pay will decrease by $73.35 because ...
- Your federal withholding will be $15.00 less
- Your state withholding will be $5.00 less
- Your withheld social security will be $6.20 less, and
- Your withheld medicare tax will be $1.45 less
Overall, your tax decreases by $27.65 per month, which leaves you $331.80 better off for the year than if you were paying those business expenses out of your after tax paycheck. Your employer should be willing to agree to this, because they will save a minimum of $91.80 yearly in matching social security and medicare taxes. They will also save on unemployment and workers compensation costs.
If you drive a lot for business, or use a lot of tools, or you are in a higher tax bracket -- the savings will be even more!
You may be wanting to point out to me that you are one of the lucky few who gets to claim an itemized deduction for these expenses, and you don't want to give that up. You would still be better off having your employer pay it for one or more of these reasons:
- The deduction is reduced by 2% of your income, so you lose part of the benefit
- The itemized deduction only reduces income tax, not social security or medicare tax
- Most people are better off with lower income because it reduces the impact of alternate minimum tax and phaseout of a variety of tax deductions/credits such as the child tax credit, education credit, earned income credit, savers credit, and IRA deduction, just to name a few.
So why wouldn't you want to do this? If you need a higher income to qualify for a loan, you will have to decide what is more valuable to you - the loan or tax savings. If your income is at the low end of the earned income credit scale, you may get a larger credit by having more income. If you think this may apply to you, get some help and double check it. But for most people who have to pay these types of expenses, agreeing to have your employer pay them instead is a real benefit. Run the numbers for your own situation and see if it will help you.
Do you have an experience with paying business expenses for your job? Please share it with the rest of us in the comment section below. I'd be interested to discuss it with you here, and thanks!
Photo Credit: Painting Wall by Petr Kratochvil