A friend switched employers in Oct. 2006. She is an MD and did not receive pay from the new employer in 2006?

Question

Various Insurance providers had not certified her eligible (until Jan 15 2007) to be reimbursed. She did not get a W2 from this employer, but the employer did take a small amount of her receipts (paitient co-pays) to apply to her portion of the office overhead. Does she have to pay tax on the amount used to pay a portion of her overhead for that time period? Her employer says since she did not get paid she does not owe taxes, but I contend that since the employer paid part of her office overhead, she is liable for taxes on that amount. She lives in Virginia. I know that she will receive a check eventually for the 4th Qtr 2006 and will owe tax when that is received.

Answer 1

NO taxes is due for money not received. The funds used for company expanses, is a business expense and would not be taxable income. The funds that will come in for work done in 2006 will have to be reported on the 2007 tax statements.

Answer 2

If your friend deducted the overhead expenses on schedule C, or as a business expense, she would have to offset it by the amount of the reimbursement. This would be the best way to do it.

Answer 3

If her terms of employment specified that a percentage of her receipts went directly to office overhead and not to her, then the receipts that went to overhead would not be taxable income.