board of directors governance policy manual - SAE International

PRESIDENTIAL TRAVEL EXPENSE POLICY
APPENDIX G-5.1
EXAMPLE -- CALCULATION OF REIMBURSEMENT
FOR VOLUNTEER SPOUSAL TRAVEL WITH GROSS UP FOR TAXES
Background: According to IRS regulations, reimbursements to volunteers for the non-business purpose travel expenses of their spouse must be
reported to the IRS as taxable income on Form 1099MISC. (Reimbursement to employees for spousal travel is reported on Form W-2). The total
of the spousal travel taken from expense report reimbursements and the tax gross-up payment is reported in Box 3 on Form 1099MISC. The IRS
instructions indicate that income reported in Box 3 is considered miscellaneous income reportable on line 21 of Form 1040.
Procedure: To calculate the tax gross-up payment, add all appropriate tax rates together for a total tax rate. Subtract the total tax rate from
100% to obtain the net percentage for calculation purposes. Divide the total spousal reimbursement by the net percentage to arrive at a tax
"grossed-up" amount for the 1099MISC. The tax rates that would be assessed against this income are typically federal and state income tax
rates. The tax gross-up payment is made in December and the previous years tax bracket rates or estimated tax rates are used. An adjustment
to the actual tax incurred can be made the next year. The following is an example of a tax gross-up calculation based on $25,000 of reimbursed
spousal travel.
Total 2008 reimbursement received for spousal travel:
$25,000 (A)
Federal Tax Rate: 35.00%
State Tax Rate: 6.50% Assumed 6.5% for this example; will vary by state
Total Tax Rate
41.50% (C)
Net Percentage for calculation purposes: 100% less (C) = 58.50% (B)
Tax Grossed Up Amount to be reported on Form 1099: (A) / (B)
$42,735 (D)
Summary of taxes:
Federal Income Taxes $14,957 These are the additional taxes that are incurred
State Income Taxes $2,778 when adding this additional income (D) to
December 2009 tax gross-up payment
$17,735 (E)
to the annual taxable income reported on tax returns.
(D) = (A) + (E). This amount to be reported in Box 3 on Form 1099MISC.
(E) = Tax gross-up check request amount.
1. INTRODUCTION
For many years the employer of the SAE President paid or reimbursed SAE International for all travel
and expenses related to the term of office, including the time periods as Presidential
Nominee/President Elect and immediate Past President. Changing business conditions have
challenged this tradition of corporate/institutional support, and it is a greater challenge for qualified
Presidential candidates. In recognition of the event that corporate/institutional support is not available,
SAE is prepared to provide financial support for presidential travel over the three-year tenure of an
SAE President. SAE Presidents are strongly encouraged to seek organizational support first and use
the budgeted travel expense support available from SAE as a backup.
2. POLICY
2.1 Effective 01 January 2009 SAE International will establish a budget not to exceed $100,000
which will be used to pay travel and related expenses of the SAE President during the three-year
period the individual serves as President-nominee, President-elect, President and immediate
past-President. Any travel and related expenses incurred beyond the $100,000 budget limit will
be the responsibility of the President.
2.2 No more than fifty percent ($50,000) of the SAE-paid travel budget will be permitted for spousal
travel only during the year of President. The Internal Revenue Service considers the cost of
spousal travel assumed, paid, or reimbursed by an organization to be compensation (i.e.,
reportable income) to the President and not a business expense. Accordingly, SAE will issue an
IRS Form 1099-misc to the President for all spousal travel expenses paid by SAE each calendar
year. SAE will pay to the President a cash gross-up payment to cover any international or United
SAE INTERNATIONAL
BOARD OF DIRECTORS – GOVERNANCE POLICY MANUAL
Page 47 of 85