Accountable Reimbursement Plans

Businesses often require their employees to incur expenses that will later be reimbursed by the business.  Typical out-of-pocket expenses include employee travel expenses, purchase of tools & equipment, employee home office expenses, mileage costs, required uniforms, dues & subscriptions. 

Benefits Of An Accountable Plan

An accountable plan is the preferred type of employee expense reimbursement plans that allows for the reimbursement of these expenses.  The IRS has specific rules for how these reimbursements can be deductible for the business and nontaxable to the employee.

Accountable Plan Requirements

In order for expense reimbursement plan to be considered as an “accountable” plan by the IRS, the following rules must be followed.

First, the expenses must have a business connection.  In other words, they must have been paid or incurred while performing services as an employee.

Next, the employee must adequately account to the employer for these expenses within a reasonable time.  You must require employees to provide you with detailed information on these expenses, including the date, time, place, amount and business purpose for the expenses.

The last requirement is that the employee must return any excess reimbursements to the employer within a reasonable and specific period of time.  If the employee does not return excess amounts, these amounts must be included in their taxable compensation from the employer.  In other words, excess reimbursements are treated like payroll and both the employee, and the employer must pay payroll taxes on the excess reimbursement. 

Accountable Reimbursement Plan Documentation

While not required, we recommend that the business establish a written accountable reimbursement plan.  A written plan will be useful to prove that you have defined rules for reimbursing employees for expenses.  Your reimbursement plan should address when employees should submit expenses for reimbursement, how your employees should request reimbursement, what expenses are reimbursable, how much can be reimbursed, and if your company has preferred vendors, who are those preferred vendors. 

If you have any questions about accountable reimbursement plans, please feel free to reach out to us.