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In reviewing FAR Part 301-52, which was covered by this chapter, I was interested to find out about the late payment fees required of the Government when a filed voucher is not paid within 30 days. According to this FAR provision, when the Government fails to meet the requisite deadline, it becomes liable for a Prompt Payment Act payment which must be equal to or in excess of what the employee may be charged by the credit card company, or where the employee pays the bill, what he or she would have been charged.
Interestingly enough, the language concerning the tax consequences of these payments is far from clear. In this regard, §301-52.22 notes that the payment is not reported as wages, but rather, is “in the nature of interest.” The section goes on to note that the payment will be reported in accordance with IRS guidelines, but fails to indicate what these guidelines state. On the other hand, § 301-52.23 states that payments in excess of what the card company would have been able to charge are reported as income and listed as wages on the employees form W2. How can a payment that is in the nature of interest be reported as wages? That is, how does it change character simply because it is in excess of the employee debt? Moreover, the fact that the employee is taxed on the amount paid that is owed or would have been owed to the card company, seems inequitable to the employee.
by Scott Goldsmith