1. What is the Tool Benefit Plan?

The Tool Benefit Plan is an accountable plan administered under IRS guidelines.  The plan allows employers to pay a portion of a qualified employee's compensation tax-free!  That portion can be up to $6.75 per hour.  If employees use their own tools and equipment on the job as a condition of their employment, then both employers and employees can save a considerable amount of money.

2. What does Precise Pay do under the Tool Benefit Plan?

Precise Pay administers and accounts for tool related expense reimbursements to make sure they have the proper business connection, substantiation, and return of excess components required by the IRS.

3. How does the Tool Benefit Plan benefit employees who use their own tools?

The Tool Benefit Plan divides an employee's compensation between time/labor/skill and tool/equipment expense. The employer pays the employee for time/labor/skill and withholds all necessary taxes. Precise Pay provides the employee with a separate check for tool/equipment expense reimbursement, which is completely tax-free.  An employee can take home up to $233/month ($2,800/year) more in net income.

4. How does the Tool Benefit Plan benefit the employer?

The employer does not pay employment taxes on the tool reimbursement check paid under the plan.  Depending on the employees’ tools and equipment and workers’ compensation rate, the employer can save as much as $2,100/employee each year (without any out of pocket expenses).

5. Can't an employee already get a tax break on his tools when he files a tax return?

An employee can claim unreimbursed business expenses as a miscellaneous itemized deduction on his tax return for items purchased that tax year (provided he saved receipts). However, the employee’s total itemized deduction must exceed the standard deduction to count. In addition, the deduction only consists of the portion that exceeds 2% of adjusted gross income (the “2% floor rule”). Furthermore, any tax reduction only decreases income tax. Social Security, Medicare, and State Disability taxes are still collected on the portion of wages an employee receives for the use of his or her tools.  Employees save significantly more money under the Tool Benefit Plan.

6. Is this reimbursement method legitimate?

Absolutely! The IRS recognizes an employer’s ability to exclude tool reimbursements from wages if done so under an accountable plan.  The Tool Benefit Plan meets the three requirements of an accountable plan.  For those who require a more in depth explanation of our program, we can provide our detailed Tool Benefit Compliance Guide.

7. Which expenses can be reimbursed?

The determination is based on whether the employee supplies the tool and/or equipment as a condition of employment. Even an item purchased before the employee joined an employer offering the reimbursement benefit would still qualify (as long as it satisfies the business connection requirement).

8. How do my employees enroll in the Precise Tools Plan?

A Precise Pay representative will present the program to the employees. Once the employees decide to enroll, we simply instruct them to list all their relevant tools and equipment on the enrollment form. It’s that simple!

9. If an employee declines to enroll in the program, does that negatively effect the plan?

No. The accountable plan's integrity remains intact if you have less than 100% participation.