Tax Scenario - Candidate Expenses

A prospective candidate asks the interviewing committee if he/she may bring their spouse and children with them on their interview visit. The Committee Chairman responds that it would be fine and that they will reimburse for ALL the expenses of the candidates visit. The business reason for the reimbursement is that the University wishes to attract the candidate and the decision would involve the spouse.

Issue: While it may be considered a valid business expense by the departmental representatives, only the portion of the expenses directly related to the candidate are reimbursable under the "accountable plan" as tax-free. All of the expenses incurred on behalf of the spouse and children are considered taxable to the beneficiary, in this case, the candidate.

This problem demonstrates the difference between a qualified (nontaxable) and a nonqualified (taxable) transaction. In this case, the processing of the reimbursement will generate a 1099 to the recipient. The candidate will receive a check for the entire amount of the expense reimbursement request, but will also receive a 1099 in January to include the nonqualified reimbursement as taxable income.

The process for payment requires the department to split the expenses on the check request and list which are for the candidate and which are for the spouse and children.

Unless the department explains this to the candidate, the candidate may be confused when they receive the 1099 in January and wonder why the University has reported taxable income to the IRS.