Tool-expense reimbursement programs can put hard cash in service technicians' pockets for the tools they buy, reduce staff turnovers and give dealerships a tax break.
These programs have been around in other industries for years. They made their way into car dealerships a few years ago. Most programs then were rate- or depreciation-based, which the IRS struck down last summer.
Not affected by that ruling are receipt-based tool expense programs such as the one offered by toolexpenses.com of East Lansing, MI.
Under this reimbursement model, dealership service and body shop technicians who sign up at a participating dealership may take a one-time reimbursement for the prior seven years' worth of tool purchases.
That's as long as those purchases were made during the employee's tenure with his or her current dealership. It assumes none of the tools have been previously expensed or depreciated. Tool purchases going forward are reimbursed throughout the following pay periods.
The tax savings to the dealership itself from having its technicians participate in such a program can be $18,000 or more a year in reduced FICA, Medicare and other employee tax levies, according to toolexpenses.com.
Here is how it works:
A receipt-tracking program makes it easy for participating technicians and dealerships. The information then passes along to the dealership's payroll department where the adjustments to gross income and the like are noted, increasing the technicians' take-home pay. Participating technicians pay for this service.
For instance, a new technician starts in a shop, without tools, but buys $100 worth that first week. At the end of the week he turns in $100 in tool purchase receipts. He is then reimbursed on his next check for that expenditure.
The following week he buys another $100 in tools, turns those receipts in, and earns a reimbursement on that $100 purchase the follow pay period. And so on.
Technicians can expect an increase to net pay by approximately 20% for all tools brought into the program. (See the chart above right.)
“Techs have more income in their pockets on a weekly basis and that puts us in a more competitive advantage over other dealerships,” says Scott Pierce, fixed operations director for Rouen Automotive Group, owner of three stores representing eight franchises around suburban Toledo, OH. “Our techs who participate are earning $40 to $50 more per week than before,” he added.
The IRS recognizes that workers who must provide their own tools and equipment — such as auto technicians — should get tax relief for these business-related expenses.
“A program like this will make a difference for our very best techs because they understand the tax benefits of the program,” says a Midwest dealer who asked not to be identified.
He adds: “Lesser techs will jump ship for 50-cents a flat rate hour because they don't understand or consider the larger impact of health benefits, tool reimbursement programs and other benefits that overall constitute a better compensation package.”
Reviewing basic income tax principles with technicians can help them understand the value of such a program to them.
Toolexpenses.com representatives visit dealerships to answer questions and set up the program internally, and then visit with technicians. In most cases about three-quarters of technicians will sign on. Hesitant technicians are allowed to sign on later, if they so desire.
Tom Lower II, president of toolexpenses.com, notes that this reimbursement program is different than deductions for tools that technicians can claim on their IRS 1040 form.
A reimbursement-based program lets a dealership offer a different way to help technicians and reduce its tax burden on participating technicians, he says.
His firm has about 250 clients enrolled in the program. Dealerships range in size from single-point stores to public dealership chains.
“This has been a great savings for the store and an even better savings for the techs and it has helped our tech retention,” says Pierce.
|Pursuant to Revenue Ruling 2004-1||Without Tool Reimbursement Program||With Tool Reimbursement Program in Dealership|
|Deduction for Expenses||$0||($100)|
|Adjusted Gross Income||$1,000||$900|
|Federal Income Tax||($200)||($180)|
|State Income Tax||($50)||($45)|
|Tool Reimbursement fee||$0||($11)|