Hello, I moved to a new job last year. The company paid me total 12,912 lump sum. They then added the "grossed up" amount 20,709 for this move to my W2 wages (so that I have to pay tax on this entire amount). They say the difference 20709 - 12912 is paid for taxes by the company.

I do not understand why I am paying taxes for this entire amount of 20,709 ? Should'nt I be paying taxes only on 12,912 (which I actually received) ?

Thanks.

#1;The new ER uses a nonaccountable plan; an arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses.

If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask yourER.Your ER will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2. You must complete Form 2106 or 2106-EZ and itemize your deductions on Sch A of 1040 to deduct your expenses for travel, transportation, meals, or entertainment. Your meal and entertainment expenses will be subject to the 50% limit . your total expenses will be subject to the 2%-of-AGI income limit that applies to most miscellaneous itemized deductions. Assume that . your ER gives you $600 a month ($7.2K total for the year) for your business expensesyou do not have to provide any proof of your expenses to your ER, and you can keep any funds that you do not spend. You are being reimbursed under a nonaccountable plan. your ER will include the $7.2K on your Form W-2 as if it were wages. If you want to deduct your business expenses, you must complete Form 2106 or 2106-EZ and itemize your deductions.


#2;as mentioned above.