Employers FAQ's

1. What is Toolchex?

     Toolchex is a Third Party Administrator of a working condition fringe benefit under an accountable plan.  The plan helps an employee that is required to have tools and equipment as a condition of employment, and who incurs related expenses in the performance of services for his employer.

 2. What does Toolchex do?
      Toolchex administers and accounts for business expense reimbursements, ensuring that all reimbursements have the proper business connection and required substantiation for working condition fringe benefits under the Internal Revenue Code.  Toolchex also tracks expenses that must be depreciated over appropriate yearly periods and provides an employee with the maximum allowable reimbursement under current depreciation schedules.

3. How does an accountable plan help employees who have their own tools?
     The Accountable Plan apportions an employee’s wages between time/labor and tool/equipment expense.  The employer pays the employee for time/labor, withholding all necessary taxes.  Toolchex provides the employee with a separate check for tool/equipment expense, which is totally tax free.  Depending on the undepreciated value of the employee’s tools, the employee can take home as much as $200/month more in take home pay for each month that the technician qualifies for during that year.

 4. How does an accountable plan help the employer?
     The employer does not have to pay employment taxes on the check it writes to Toolchex to cover tool expense reimbursement benefits paid under the plan.  Again, depending on the undepreciated value of the employees’ tools, the employer will save $765.00 for every $10,000 in qualified reimbursed 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 employee business expenses as a miscellaneous itemized deduction on his tax return.  However, to reduce the amount of taxable income on his return, the deduction must exceed 2% of adjusted gross income to count.  In addition, his total itemized deductions must exceed the standard deduction to count in 2009, ($5,700 for single and $11,400 for married filing jointly).  And then, any tax reduction is only a reduction of income tax.  Social Security and medicare tax is still collected on the portion of salary “bump” an employee is getting because he has to have tools.  It is the inequity of the unreimbursed expense approach that prompted Congress to authorize the reimbursed expense approach.

 6. Is the reimbursed expense approach really legal?  It sounds too good to be true!
     Congress has continued to authorize these programs, so long as they are administered under an “accountable plan” with requirements of substantiation of expenses, business connection, and return of excess reimbursement.

 7. What determines the expenses that can be reimbursed?
     In order for expenses to qualify and be included on the plan, all expenses must
     (1) meet the business connection and they must
     (2) be substantiated by a proof of purchase. 
         1) Business Connection refers to tools that the technician is required to have to work for you the current employer. 
          2) Proof of purchase must include the following items: purchase date, description of purchase and price of the expense.  Only items that meet the two requirements of Business connection and Substantiation and have not been depreciated in prior years will be allowable on the plan. 

 8. How does Toolchex account for prior deducted tools?
     We simply require the employees that want to participate in the plan to sign a transcript request form which is filed with the IRS to allow Toolchex to view any past deductions.  Any amounts discovered through the transcript request process are automaticlly disqualified from the plan resulting in a lower reimbursable tool value balance.  Additionally, in the enrollment meeting the technicians that sign up authorize that they have been educated on accountable plans being an alternative method for depreciating their tools and that they cannot, and will not, take more than one form of depreciation on each of their depreciable assets.

 9. If the employee is reluctant to enroll in the reimbursement program, does that decision negatively impact the plan?
     The accountable plan’s integrity is not affected by having less than 100% participation.

 

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