Gross Income Tax: Long Term Travel Expense Reimbursements
Under the New Jersey Gross Income Tax Act, all earnings in connection with employment are reported by the taxpayer as wages, salaries, commissions, bonuses and other remuneration received for services rendered, pursuant to N.J.S.A 54A:5-1(a). An employee, as defined in N.J.A.C. 18:35-7.1, cannot deduct any costs and expenses incurred in connection with such employment from gross income.
As a general rule, wage income that is reported on the Federal return will be included on the New Jersey return, with some exceptions. One exception is that employees may exclude from the wages category of income reimbursements for employee business expenses reported as wages on their W-2, provided the following criteria are met: (1) the expenses for which the taxpayer is reimbursed are job related expenses; (2) the taxpayer is required and does account for those expenses to his or her employer; and (3) the taxpayer is reimbursed by the employer in the exact amount of the allowable expenses.
In the case of an employee engaged in long term travel (travel lasting for more than a year) where the employee receives a commuting expense reimbursement and an additional gross-up amount from the employer for traveling from home to a job site, the Division recently opined that these are considered salary adjustments and not reimbursed job expenses. Because the employee received the gross-up amount, the employee is not being reimbursed by the employer in the exact amount of the allowable expenses and consequently does not meet the third criteria of the above three-prong test.
Therefore, the commuting expense reimbursement and the additional gross-up amount are taxable for New Jersey gross income tax purposes if reported on the employee’s W-2 and are also taxable for federal income tax purposes.