Our Second Check Tool Reimbursement Product

The following are the most commonly asked questions regarding our plan. For technical questions regarding the software application call our customer support dept. If you do not find your answer here, please contact our customer service department at: (888)-780-7555 or email us at: support@secondcheckonline.com

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DISCLAIMER: THE INFORMATION CONTAINED HEREIN SHOULD NOT BE CONSIDERED TAX ADVICE OR RELIED UPON AS ACCURATE. ANY INFORMATION YOU RECEIVE HEREIN SHOULD BE DISCUSSED WITH YOUR TAX ADVISORS BEFORE ENGAGING IN THIS PLAN.


Q: If my employees don’t make much money, why should they use Second Check?
Why should my company use second check?
A: Regardless of how much money your employees make, it will always be to their benefit to use Second Check. Second Check provides a means for them to recover 100% of their incurred business expenses, without having to pay taxes on the reimbursed amounts or report the payments on their tax return.

Your company will also see the benefits of Second Check immediately, because the amounts you pay as reimbursements are not considered payroll, thus giving you immediate tax savings as well. Regardless of the amount, it will always be a savings to your business.

Q: If my employees buy more tools, will their tool reimbursement rate go up?
A: After the first reimbursement checks are processed from the system, the reimbursement rates will not change for those employees for the current compliance year. However, it is possible that their rates will change the following or any subsequent year thereafter because of new compliance factors that update the system each year.

Q: Is the company saving money by using Second Check?
A: Yes, if your company currently pays its employees for the value of their tools and equipment, the company will save money in payroll taxes and possibly workers’ compensation premiums by using Second Check.

Q: Will My employees save money by participating in the Second Check reimbursement plan?
A: Yes, your employees will see substantial tax savings. There is no applicable tax on Second Check reimbursement payments, so they will save on all payroll related taxes such as FICA and Income tax on those amounts paid to them as reimbursements.

Q: Can I use Second Check if I pay my employees by commission or salary?
A: Yes, as long as they are using their tools and equipment at work in connection with their job and you currently pay them for that value. However, to pay by commission, you must insert the dollar amount of the reimbursement into the software. Your software guide will explain this procedure in more detail.

Q: How much income do my employees need to make to qualify for the Second Check plan?
A: Their income level does not matter except that they must be making at least the minimum rate for your state. Tool rates and payment schedules are assigned based on actual expenses incurred, so as long as your employees are making more than the state minimum wage rate, they can qualify for a Second Check reimbursement rate.


Q: Are over-time hours affected? How will I pay over-time through Second Check?
A: Employees cannot be paid more than the actual reimbursement rate calculated by the system, regardless of the number of hours they work, therefore any overtime hours and payments you may wish to make, should be paid through your payroll system.

Q: Can an employee start the program, go off the program, and then go back on the program?
A: Yes, When an employee runs out of reimbursement basis (expense balance), he can no longer receive payments from the application under an accountable plan. For continued payments made for the value of his tools & equipment, he must be paid through your payroll system until he submits more expenses to add to his expense balance. He can then return to the plan and be paid through the plan until he again runs out of substantiated reimbursement basis.

Q: How will my employees’ workers compensation benefits be affected by using Second Check.
A: Your employees’ workers compensation emergency care and expenses should not be affected. However depending on your workers’ compensation carrier and the method in which they require you to report employee payments and premium basis, your employee disability benefits could be affected. Due to the flexibility of each carrier, we encourage you to discuss the issue with your workers’ compensation representative.

Q: What affect will the loss of W-2 income have on unemployment compensation?
A: When reporting wages for unemployment benefits claims, you must use the earnings amounts that you submitted with your payroll reports. In most situations, the amount reported as wages on employees W-2 will most likely not affect unemployment compensation benefits, however unemployment compensation varies from state to state and your unemployed employees may see a reduction in unemployment benefits due to participation in the Second Check plan. We encourage you to discuss the issue with your tax advisors or state representative.

Q: How do I handle employee judgments, liens and child support payments?
A: Judgments, liens, child support or other agency encumbrances are typically charged on services only, therefore Second Check payments typically should not be included as part of your calculation for making those payments. We encourage you to discuss the issue with your advisors.

Q: How do I fill out verification of income forms for my employees’ loans, and will participating in the Second Check plan harm their ability to qualify for mortgages and other loans.
A: Because the Second Check payments are still considered part of your employees’ compensation package, it should be used to support their compensation in qualifying for loans and mortgages. Simply add the Second Check payments to the compensation for this purpose and it should not adversely affect their qualification.

Q: How will my employee’s 401(k) plan be affected by participating in Second Check?
A: It may or may not be affected. If employees are contributing based on a flat amount of contribution then changing their payment structure should not impact that relationship. However, if employees are contributing based on a percentage of their taxable compensation, there could possibly be a reduction in their contributions. We encourage you to consult your plan administrator.

Q: How will short and long term disability benefits be affected for my employees?
A: Short and long term disability benefits are not likely to be affected. However, in all cases these benefits vary state-by-state. For further answers on how these disability benefits may be affected we encourage you to contact your insurance representative.

Q: How will my employees’ Social Security benefits be affected by participating in Second Check?
A: Due to the periodic changes in Social Security contributions, benefits calculations and legislation, it is very difficult to evaluate the affects that participating in Second Check might have on Social Security benefits.

Q: Should I add the amounts reimbursed through the Second Check plan to my employees’ W2 Form or will I need to issue tax forms such as 1099s to my employees at the end of the year? Will they need to pay any taxes on the Second Check payments?
A: No. Second Check payments are made pursuant to an accountable plan and are excluded from gross income and tax reporting requirements. They should not be reported as wages or other compensation and do not need to be reported on any year end form. There is no tax report needed for these payments and no tax due by either you or your employees on valid accountable plan reimbursements. Please consult your tax advisor.

Q: Are my employees’ tool expense reimbursement payments subject to state sales and use tax?
A: No, your employees have paid or complied with sales and use tax requirements when they purchased their tools, therefore, their expense reimbursements are not taxable nor do they require reporting to your state sales and use tax department.

Q: Can my employees deduct or depreciate their expenses for tools and equipment on their income tax return if they are receiving reimbursement payments from the Second Check plan.
A: No, they cannot receive reimbursement payments and take other tax deductions on the same expenses.

Q: Can my employees get a tax deduction on their income tax return for the processing or administration fees they may be charged by my bookkeeping service to process their reimbursement payments under the Second Check plan?
A: If you are charging your employees an administration fee through the application for processing their reimbursement checks, the fee is automatically added to their reimbursement basis as a business expenses and becomes part of their reimbursement. They cannot take a deduction and be reimbursed for the same expense. However if you or your bookkeeper are charging them outside of the system, they may be able to take a deduction.

Q: Can an employee claim deductions on other expenses that are not included in the Second Check plan, such as mortgage interest or medical expenses?
A: Second Check plan does not change the way employees deduct other expenses. We encourage your employees to consult their accountant or tax preparer for advice on other deductions.

Q: Is it better for my employees to write off their tools at the end of the year on their tax return or is it more beneficial to participate in the Second Check reimbursement plan?
A: In almost all cases, it is better to participate in the Second Check tool expense reimbursement plan. There are several reasons:

The 2% limitation rules that apply for deductions on income tax returns do not apply to the Second Check tax savings. This rule prohibits most employees from taking any deductions, and those that can, will loose the first 2%, therefore not getting 100% of their available benefits as Second Check offers.

Using Second Check also allows the tax savings on payroll taxes, such as FICA and Medicare, where deducting expenses on tax returns will not provide this benefit.

Your employees receive their tax savings benefits immediately and do not have to wait until the file their tax returns.

Q: What tax rules apply when I reimburse my employees for employee business expenses?
A: The tax rules that apply when an employer reimburses an employee for employee business expenses depend upon whether the reimbursement is made under an accountable plan or a non-accountable plan.

An accountable plan is a reimbursement or other expense allowance arrangement that satisfies three specific IRS requirements. These requirements are: (1) business connection, (2) substantiation, and (3) an obligation on the part of the employee to return any payments he or she receives in excess of substantiated expenses.

The Second Check plan, as administered pursuant to the Plan Document, satisfies these requirements and therefore is considered an accountable plan.

A non-accountable plan is a plan that does not meet these requirements. All non-accountable plan payments must be paid and taxed as payroll earning.