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Ambush! State is rejecting employee business expenses

Apparently, getting smacked with a hike and other fee increases that bring Pennsylvania’s gas taxes to the highest in the nation, according to the American Petroleum Institute, is not enough.

Apparently, getting smacked with a hike and other fee increases that bring Pennsylvania’s gas taxes to the highest in the nation, according to the American Petroleum Institute, is not enough.

The Pennsylvania Department of Revenue is further harming taxpayers by aggressively disallowing otherwise allowable employee business expenses on Schedule UE. This comes on the heels of the gas-tax increase that will result, after the series of hikes over five years has been implemented, in about another $2.50 a week for a typical Pennsylvania driver.

The DOR initiative to deny a taxpayer’s unreimbursed business deductions on Schedule UE has set off criticism among taxpayers and tax preparers. There were no changes to the tax laws that define allowable employee business expenses that resulted in a change in policy. And there has been very little warning from the DOR to alert taxpayers or tax preparers of the change.

In other words, the DOR changed the tax-return review process that blindsided taxpayers who have legitimate, employee business expenses by disallowing previously allowed items.

Previously, taxpayers’ unreimbursed employee business expenses were generally accepted and only disallowed in the event of an audit. The new process arbitrarily disallows taxpayers’ legitimate allowable employee business expenses, resulting in additional taxes and compliance costs to taxpayers.

Before blindly paying the increase in taxes, which in many cases are relatively small, taxpayers should investigate the disallowance because the additional tax can quickly become very expensive.

If taxpayers don’t challenge, the DOR can and often will go back three years and disallow previously allowed expenses. In addition, getting your expenses accepted in the future may prove to be very difficult.

Further, these disallowed expenses may negatively affect both your federal and local tax returns. Keep in mind that taxing agencies share information, so just blindly accepting the disallowance can have negative consequences on previous and future years and on other returns.

Many tax-return software packages, as a default, pick up the information from the federal tax return and carry those numbers to Pennsylvania’s Schedule UE. But it should be noted that allowable employee business expenses for Pennsylvania purposes are similar, but not exactly the same, as expenses allowable for federal purposes.

For example, commuting costs between jobs are not allowable for Pennsylvania tax purposes but are on the federal tax return.

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