An accountable plan is an arrangement established by employers that complies with Internal Revenue Service (IRS) regulations, ensuring that employer reimbursements for business-related expenses are not included in an employee’s taxable income. To qualify as an accountable plan, the arrangement must meet specific IRS requirements, thus allowing reimbursements for expenses such as travel, meals, and supplies to be non-taxable.
Requirements of an Accountable Plan§
Business Connection§
The expense must have a business connection; it must be a legitimate business expense for the employer.
Substantiation§
Employees must substantiate the expense by providing adequate documentation, such as receipts, within a reasonable period.
Returning Excess Amounts§
Any reimbursement or allowance that exceeds the amount of the expense must be returned to the employer.
Examples of Qualified Expenses§
Travel Expenses§
- Airfare: Costs incurred for air travel related to business.
- Lodging: Hotel stays during business trips.
- Meals: Food expenses during business-related travel.
Equipment and Supplies§
- Office Supplies: Items such as paper, pens, and other materials needed for work.
- Electronic Gadgets: Laptops or mobile devices necessary for business purposes.
Historical Context§
The concept of an accountable plan was formalized to provide clear guidelines on how business expenses should be handled for tax purposes. It aims to prevent the abuse of expense reimbursements and ensure a fair tax system.
Applicability§
- Businesses: Any business that reimburses employees for expenses.
- Nonprofits: Nonprofit organizations can also establish accountable plans.
- Government Entities: Government employees’ expenses can be managed through accountable plans.
FAQs§
What happens if an arrangement doesn't qualify as an accountable plan?
How long does an employee have to substantiate an expense?
Can an employer set a per diem rate?
Summary§
An accountable plan is a crucial mechanism for ensuring that employee reimbursements for business expenses are handled in a tax-efficient manner. By meeting the IRS requirements for business connection, substantiation, and returning excess amounts, employers can exclude these reimbursements from employees’ taxable income. This system helps maintain transparency and fairness in the reimbursement process.
References§
- IRS Publication 463: Travel, Entertainment, Gift, and Car Expenses.
- IRS Employer’s Tax Guide.
By understanding and implementing an accountable plan, employers and employees can benefit from a system that simplifies the handling of business expenses while ensuring compliance with tax laws.
