Wage Withholding Is Not Required for Reimbursed Employee Travel Expenses: HB & R, Inc. v. United States
In HB & R, Inc. v. United States, the Court of Appeals for the Eighth Circuit held that a corporate taxpayer’s payment of expenses of employee travel undertaken on behalf of the employer were not “wages” subject to FICA and income tax withholding. The travel expenses were deductible to the employer-taxpayer under section 162 as ordinary and necessary business expenses, but were not thereby compensatory in nature. Further, the court noted that the employees (who were not before the court) could not deduct the travel costs because they were commuting expenses.Part I of this Note summarizes the facts of HB & R II. Part II explains the decisions of the District Court and the Eighth Circuit. Part III analyzes both decisions, discusses the implications of HB & R II, and concludes that the Eighth Circuit’s result was correct although its opinion ranged well beyond the narrow issue before it.