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Offering $500 toward EE laptop - how to account for it

accounting for reimbursing employees for computersWe are considering putting in place a policy whereby we give new hires up to $500 to put toward a laptop of their choice. I believe this wouldn't be a tax event as they'd need to submit expense via our expense reporting software. However, the question came up as to who owns the laptop when they leave? ie. more so in cases where they purchases a laptop that cost > $500.

Answers

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

If I received $500 from my employer for a laptop allowance and spent $1,000 out of my pocket, that laptop is coming with me, unless the company wants to reimburse me for the $1,000 I spent from my own account.

My opinion is that the company should either purchase a standard laptop for its employees, or not at all. The majority of people today need either a desktop or a laptop to function at work. Some people would need both. For the people that need a desktop, are you giving them an allowance to purchase their own desktop?

If you view a laptop as being unnecessary to the employee, have them justify why they need it. If it makes sense afterwards, purchase it when the cash is available.

Giving an allowance of $500 would trigger a taxable transaction for the employee.

However, if the company purchases the laptop for the employee there isn't a tax impact to the employee.

Cindy Boyce
Title: Senior Manager, Outsourced Financial Ser..
Company: BDO USA, LLP
(Senior Manager, Outsourced Financial Services, BDO USA, LLP) |

More info is needed. What is the intented use of the laptop? The key in my view is the purpose of the laptop allowance. If the company is essentially "giving" the employee $500 towards a personal use laptop, then it would be income to the employee. If the company provides the laptop allowance so the employee can perform his job, then it could be excluded as a working condition fringe benefit (assuming the $500 expenditure is supported with documentation under an accountable reimbursement plan). See the following excerpt from IRS Pub. 15B (although you should also go directly to the tax code for reliable support of your position). The policy should define ownership of the laptop.

"This exclusion applies to property and services you provide to an employee so that the employee can perform his or her job. It applies to the extent the employee could deduct the cost of the property or services as a business expense or depreciation expense if he or she had paid for it. The employee must meet any substantiation requirements that apply to the deduction. Examples of working condition benefits include an employee's use of a company car for business, an employer-provided cell phone provided primarily for noncompensatory business purposes, and job-related education provided to an employee.

This exclusion also applies to a cash payment you provide for an employee's expenses for a specific or prearranged business activity for which a deduction is otherwise allowable to the employee. You must require the employee to verify that the payment is actually used for those expenses and to return any unused part of the payment."

Topic Expert
Malak Kazan
Title: VP, Special Projects
Company: ERI Economic Research Institute
(VP, Special Projects, ERI Economic Research Institute) |

If the intent of setting the $500 cap is that price point should provide a sufficient quality laptop to do their job, then the policy should be articulated spend no more than $500. Hope this helps.

Derick Potts
Title: Director of Operations
Company: eGroup
(Director of Operations, eGroup) |

If this is meant to implement a BYOD policy, then by definition the laptop would be owned by the employee.

The easiest approach would be to treat the payment as taxable and allow the employee to keep the device when separated from the company. This removes any burden by the company to track the device and alleviates any worry of IRS review - laptops are not specifically identified in the regulations, so as Cindy points out above, an accountable plan would need to be place and documentation would need to be submitted and maintained.

Anonymous User
Title: CFO
Company: Local Government Agency
(CFO, Local Government Agency) |

Look at the standard "boot and tool" or "uniform" allowances being used in industry. Both are viewed and treated as taxable income to the employee.

Companies that want to get around the taxable compensation aspect, will sign a contract with a provider and direct the employee to go choose their boots or tools from that provider and the company will be billed. No taxable transaction there and the company retains ownership in theory, even on departure. Note I said "in theory". ;-)

No need to reinvent the wheel.

Anonymous
(Controller) |

Okay, thanks for the input so far. And, it seems clarification is needed. I agree, I've always worked at companies where I was give X of computer related property that was clearly owned by my employer. We are a fast growing tech company (ie 5 to 65 EE's in 6 months and growing) and have EEs in 10 states. We do not have an IT department. We don't want to force folks to be Apple or Mac, however, at same time we want to limit cost. Thus, why this was seen as a win/win ... ie if an EE didn't want a Lenovo/HP and instead wanted an Apple Airbook.

I purchased my laptop for $700, submitted receipt via expense report and called it a day. Granted, I'm in finance and it is clear to me that this laptop is my employers. However, I do see concerns with folks who spend more to get "exactly what they want". Also, I would only reimburse an amount that was substantiated by a receipt. But, interesting thoughts have been brought up.

Perhaps we have a standard laptop that we give to employees, however, if they want something else then we do the $500 option which is put through as other income on payroll, though, this would mean they get < $500.

Our employee base is comprised of engineers, customer support and implementation, sales and finance/operations. Thus, a computer of some sort is needed to do your job. Everyone has laptops.

So, based on this extended information hopefully I can get some more thoughts on how to tackle/address.

Thanks.

Topic Expert
Patrick Dunne
Title: Chief Financial Officer
Company: Milk Source
(Chief Financial Officer, Milk Source) |

There should be no mistake that the laptop is the employees to keep. If this is the case, the $500 is a taxable event. If the laptops are to be kept by the company, you would need to define how much can be spent and fully reimburse that amount. In this case, you could treat them as and expense
I am not sure how you handle file security and IP, but all files should be on a shared server as I see issues when employees leave and no IT department structure.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Here are my .02 cents.

(1) Sometimes, too many choices is a bad thing.
(2) Since you say, "Thus, a computer of some sort is needed to do your job.", then my opinion is that it is the company's responsibility to provide it.
(3) Provide the Lenovo as the PRIMARY option. I do however think that you should at least provide a much higher model than what the $500 (other alternative) can buy. As you said, you bought yours at $700 which I think is the minimum for a "respectable" model/specs these days.
(4) Provide the $500 as an option (income for employees) and they retain laptop ownership. Note: they may NOT need to present receipts or show you a brand new laptop for this.

From a management perspective, put your foot down and be done with it.

Anonymous
(Controller) |

If the company retains ownership the it's listed property and subject to the depreciation. You simply can not write it off. If the employee retains ownership, the company will have have to W-2 the payment. The employee could then deduct as an unreimbursed employee business expense if they itemize their deductions and maintain records of their percentage of business usage.

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