My boss purchased a car for me. Is it legal to pay him back pre taxes from my paycheck?

He is an angel and I want to pay him back a.s.a.p. I plan to basically "lower" my salary by $300.00 per month - I don't know what the tax repercussions are. Since we're both in agreement does the government even have to know?

I knew this was too good to be true. Too bad it was my idea.

Yes, this is illegal. You would effectively be deducting the cost of a car that you (I presume) are using for personal use.

As to your second question, things like this happen more than you might think. I think this is wrong and that you should pay him back with an "after tax" payroll deduction. BUT, if you are going to do this, just don't document it as such because in the event you (or more likely his business) gets audited you would both be on the hook for back taxes, interest and possibly penalties. If it were me, I wouldn't go there.

You abosolutely must count the $300 as taxable income. You can not pay pre-tax. It is better for both of you if you receive your full pay check and then make a separate payment to the boss for the car. If you really want to do the payroll deduction then your boss needs to consult with his attorney and accountant to determine if this is allowable under your state law. Even if you can use deduction it is still income, you and your boss will both face criminal prosecution for tax fraud if you fail to report the $300 as income.

No!! The money you pay him back with has to taken out AFTER taxes are figured on your gross. In order for it to be pretax, it must be a qualifed program. I.E. 401k, medical/dental insurance, etc. Not personal loans.

No chance! A loan to an employee cannot be repaid with pre-tax salary reductions.

No, you can't pay for the car pre-tax. If your insurance was through an employer plan, then your contribution could come out pre-tax, but since it isn't, you can show it as a medical expense if you itemize and have enough medical expenses to meet the limit, but that's your only option.