Forms of compensation
Forms of compensation
(OP)
Hi everyone.
From a tax, legal, and ethical standpoint, what can be called, "compensation?"
I'm working part time while in school to bring in enough money, basically, to pay for gas. Let's say I make $300/month on the average.
What if I were to approach my employer (a small engineering firm) and ask for a company gas card in lieu of a paycheck? What are your immediate thoughts about that? Is anyone aware of the cutoffs for compensation?
Or another option: What if I ask them to directly pay my health insurance in lieu of a paycheck?
For the business owners out there, is there any benefit to you as well in either of these scenarios?
As another way to ask this question: How is it decided in any engineering firm that an employee will be paid x dollars per year, and that it is ok from a tax, legal, and ethical standpoint to give them a company car worth $x/year and medical insurance worth $x/year?
From a tax, legal, and ethical standpoint, what can be called, "compensation?"
I'm working part time while in school to bring in enough money, basically, to pay for gas. Let's say I make $300/month on the average.
What if I were to approach my employer (a small engineering firm) and ask for a company gas card in lieu of a paycheck? What are your immediate thoughts about that? Is anyone aware of the cutoffs for compensation?
Or another option: What if I ask them to directly pay my health insurance in lieu of a paycheck?
For the business owners out there, is there any benefit to you as well in either of these scenarios?
As another way to ask this question: How is it decided in any engineering firm that an employee will be paid x dollars per year, and that it is ok from a tax, legal, and ethical standpoint to give them a company car worth $x/year and medical insurance worth $x/year?





RE: Forms of compensation
It will all be fine until the taxman finds out!
RE: Forms of compensation
Everything ( money, marble, chalk, movie tickets, etc. )you get for doing work is taxable.
If you get a car to drive doing your work that's not taxable, if you drive it home that part is.
RE: Forms of compensation
Let's assume you are in the U.S. There are two possible scenarios. First, you are an employee. Second, you are a contractor.
In the first scenario it is illegal in the "Land of the Free" to pay someone solely in kind. The reason for that is that the employer is required to send 7.5% of what you make to Social Security and deduct another 7.5% from your paycheck. If you get paid 100 gallons of gasoline, the IRS would very much resent having 14 gallons gasoline show up in their Salt Lake City offices--I think the FBI might get involved. It is ok to have a nominal salary and the rest of your compensation be made up of perqs, but there has to be a cash salary for an employee.
In the second scenario, a compensation agreement between two companies is whatever they decide to make it. If you set yourself up as a contractor then your compensation can be a gasoline card, pre-paid insurance, or Polish Hams (McDonald Douglas once sold a DC-10 to Poland for a huge number of hams, Douglas gave them to employees as part of a Christmas bonus, they were really good). The tax law is pretty clear on this one--the receiving party has to declare the fair market value of the gas card as income, pay income tax on it, and pay a 15% "Self Employment Tax" to replace the Social Security hit mentioned above. If you're making $300/month, you probably don't pay much tax, but the IRS gets really cranky about receiving estimated taxes periodically and getting the appropriate tax forms submitted. This scenario might reduce your employer's costs and increase your apparent compensation, but in the long run it is an illusion.
As long as you're not trying to defraud the tax man, there are no ethical considerations to being paid in-kind instead of in-cash, but the benefits are so small that it is rarely good economics.
David Simpson, PE
MuleShoe Engineering
www.muleshoe-eng.com
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RE: Forms of compensation
I know that it sounds premature to be dealing with retirement, banking even $5000 into a retirement account could give you about a million at retirement.
TTFN
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RE: Forms of compensation
From a small business point of view, I think it's easier to pay the part timer in money, pay the payroll taxes, and let the worker deal with filing for a refund.
RE: Forms of compensation
RE: Forms of compensation
Now someone mentioned that in Canada, every benefit you get is taxed. I hadn't really thought of this until now, but while I was working full-time, my health insurance (part paid by the company and part paid by myself), wasn't taxed that I know of. It never appeared on my W2 anyways. And in fact my portion of the health insurance payment came out of a Section 125 plan so the dollars were pre-taxed. Could this be something that, gulp, wasn't taxed? And if that's the case, how can a company or individual get away without paying taxes on it? It can be a significant sum of money.
As for my situation, it's rather unique (just like everyone elses...). With my combination of reasearch assistanceship and fellowship, my family and I are living pretty close to the poverty line. However, we still own and rent out a duplex in another state. With the rent we receive from that, by the government's definitions, that makes us pretty well-off. So well off that if I make any modest amount of money over what I bring in now, I lose certain financial aid packages. So even though I want to continue to contribute to my company and perhaps society, and provide my family with some beer money-I mean gas and food money, unfortunately I can't do that in our current situation.
As a side note, 100% of the money we receive from the duplex (plus a little more of my own) goes to the mortgage. One could argue that one day I'll make my money on it, but with the major correction to the housing prices and the amount of continuous maintenance that needs to be done, I doubt I'll ever realize any profit. That's nothing the government is concerning themselves with though because it's my problem.
RE: Forms of compensation
TTFN
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RE: Forms of compensation
- Steve
RE: Forms of compensation
______________________________________________________________________________
This is normally the space where people post something insightful.
RE: Forms of compensation
RE: Forms of compensation
Now if I work extra extra hard, I can make $12,000 over the course of the year, giving me the original $2,000 extra that I'd like to have plus pay for the $10,000 myself and say "no thanks" to a portion of my fellowship that I've been awarded from the university. This is fine with me since I don't mind hard work, but it would take many hours away from my playtime with my new daughter. The money would need to be earned when I'm not studying too, which doesn't leave a lot of time.
Ideally, the cash under the table is the only way to do this and obtain the extra $2,000 per year I need for gas, but my employer isn't willing to do that, and I'd be uncomfortable with it too.
You can see the dilemma...
RE: Forms of compensation
1) Play my guitar on the street and collect a little cash
2) Collect pop cans (not SODA cans)
BTW, Cass, how are you usually paid to dance for your gigs? I've been told I can really move out on the dance floor. Maybe I can also belly dance too. People will pay me not to do that!
RE: Forms of compensation
Down here, in the land of the free, I have heard of a striper who successfully deducted $15,000.00 for breast implants.
Why don't you just become an employer with an S-corporation? You will be deducting a great deal of your miles, your home office, etc. probably will add up to more than your gas money.
RE: Forms of compensation
Dan - Owner

http://www.Hi-TecDesigns.com
RE: Forms of compensation
RE: Forms of compensation
RE: Forms of compensation
RE: Forms of compensation
Don't do it!
RE: Forms of compensation
Oh, for that luxury. In the UK 71% of the cost of petrol is tax and duty. 71%, FFS!!
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If we learn from our mistakes I'm getting a great education!
RE: Forms of compensation
How much of that goes into transportation infrastructure and how much goes into what we would call the general fund?
RE: Forms of compensation
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If we learn from our mistakes I'm getting a great education!
RE: Forms of compensation
No matter where you are, legally arranging things to minimise tax is legal and ethical, but lying or deliberately hiding or disguising income is fraud.
In Aus, part time work as a full time student seldom gets one above our tax free threshold which I think is about $6000 per year.
Regards
Pat
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RE: Forms of compensation
I'm indeed all-American. (I may have mentioned in other threads throughout the years that I've lived in Michigan my whole life and am now at U. of Illinois at Urbana-Champaign.)
I'd first like to set the record straight regarding one thing in particular:
I HAVE NO INTENTION OF EVER IN MY LIFE EVADING ANY OF MY LEGAL TAX RESPONSIBILITIES. Perhaps no one has accused me of this directly yet, but that's the general tenor I'm seeing since my May 28 post.
In that post I (tongue in cheek) mentioned that, "money under the table is the only way...my employer would be uncomfortable...I'd be too." I didn't word it correctly though. By "uncomfortable" I meant I WOULD NEVER DO IT. PERIOD.
My next post on May 28th involving ideas for odd jobs was meant to be funny, and not to be taken seriously. At the time, I thought the well thought-out and placed emoticon would signify this.
With that out of the way, I'd like to provide you with an update on my plan, and I'm still open to constructive comments:
In the first couple posts, I mentioned that we own a duplex, which happens to be in Traverse City, Michigan. I also mentioned that because of the rental income (which we actually see none of); Uncle Sam thinks we're pretty well off even though we currently take in only about $15,000 per year with the fellowship; our primary income source. I also mentioned that if my side work (which is and will always be taxed) exceeds a certain amount (which is a fairly small amount), I'm no longer eligible to receive a large portion of my $15,000 financial aid package.
With this being the case, I sought other forms of compensation so that I might provide a little better for my wife and daughter during this time.
The answer became fairly obvious to me a while after I originally posted, however:
I need to sell the duplex, and fast.
Without the duplex, I'd be able to make more money working with my engineer associate, without the big problem of losing my fellowship. Originally, I had hoped to hold onto the duplex as I believe in a good economy it would produce very large profits when we go to sell. However, at this stage it will be a break even prospect. It's the only thing to do though. We need to take the loss.
As a side note regarding my current part-time employment; my employer pays for any general or PL insurance, corporate security taxes (they pay their's, I pay mine). It's no different than simply working for someone whether it's an engineering firm or a McDonalds. Because of this, it's an easy way to work since I do not need to set any corporate structure up at all...