By all accounts, Beyoncé’s Super Bowl halftime show literally put the lights out. And for the price, it was a steal. She is at the top of her game and reaps huge rewards, earning about $70 million annually. Although her income dropped from that levellast year when she and husbandJay-Z had a child, she’ll reportedly soon be back to grossing over $2 million a night.
Yet her Super Bowl show was done at no charge, though the exposure is clearly money in the long run. See Why Beyoncé Isn’t Getting Paid For Her Super Bowl Halftime Gig. Not paying is NFL policy, although they cover all costs including travel, lodging, setup, fees for backup dancers and musicians. That could total $600,000 or even more. And how the money changes hands can impact taxes and tax reporting.
This surely sounds like a wash, and for Beyoncé, it should come out the same. But in the tax world it can come out differently. If you imagine that she were an employee of the NFL rather than an independent contractor, the direct pay or reimbursement choice might matter in ways that seem surprising if not downright unfair.
In fact, many an employee has found that getting ‘reimbursed’ by their company for an employee business expense can leave them short. The employee has to report the income when it is included on their Form W-2. But when they deduct the expenses, their deductions are often limited. If you can’t deduct it dollar-for-dollar, you’ll certainly care how the reimbursements are handled on your taxes.
The best deal is if your employer has an “accountable plan.” If the company reimburses you or gives you an advance or allowance for your employee business expenses under that kind of plan, you should be able to avoid the issue. The payment won’t appear on Form W-2, you do not include it in your income, and you cannot deduct any of the reimbursed amounts.
To be an accountable plan, your employer’s reimbursement or allowance arrangement must include all three of the following rules:
- You must have paid or incurred expenses that are deductible while performing services as an employee;
- You must adequately account to your employer for these expenses within a reasonable time period; and
- You must return any excess reimbursement or allowance within a reasonable time period.
Beyoncé surely doesn’t need to worry about this sort of thing. But if you think details like direct pay vs. reimbursement don’t matter to employees, think again.