Employee reimbursements refer to the payments made by an employer to an employee to cover expenses incurred while performing job-related duties. These expenses can include travel expenses, office supplies, meals, and other costs necessary for fulfilling the responsibilities of the job.
Types of Employee Reimbursement Plans
Accountable Plan
An accountable plan is a reimbursement scheme where expenses are reimbursed only when specific conditions are met. These conditions include:
- Expense Connection: The expenses must be related to the employer’s business.
- Adequate Accounting: Employees must substantiate the expenses with receipts, invoices, or expense reports within a reasonable timeframe.
- Return of Excess: Any excess reimbursement beyond the substantiated amount must be returned to the employer.
Tax Treatment: Reimbursements under an accountable plan are not included in the employee’s gross income, and therefore are not subject to income or employment taxes.
Non-Accountable Plan
A non-accountable plan does not meet the requirements stipulated under an accountable plan. Reimbursements under this type of plan:
- No Requirement for Substantiation: Employees are not required to provide detailed documentation of expenses.
- No Return of Excess: Employees are not required to return any excess reimbursement to the employer.
Tax Treatment: Reimbursements given under a non-accountable plan are included in the employee’s gross income and are subject to income tax and employment taxes.
Special Considerations
Employee reimbursements should be meticulously documented to ensure compliance with IRS regulations. Both employers and employees need to understand the nuances of each type of plan to maximize tax efficiency and minimize liability.
Examples of Employee Reimbursements
- Travel Expenses: An employee is reimbursed for airfare, lodging, and meals during a business trip.
- Office Supplies: Costs for purchasing necessary office equipment such as laptops and printers.
- Training and Education: Reimbursement for expenses incurred while attending work-related training programs or courses.
Historical Context
The concept of employee reimbursements has evolved alongside changes in business practices and tax regulation. Initially, there were fewer guidelines, but as businesses expanded globally, more structured reimbursement policies became necessary.
Applicability
Understanding the differences between accountable and non-accountable plans is crucial for both employers and employees to ensure proper tax reporting and compliance.
Comparison Between Accountable and Non-Accountable Plans
| Feature | Accountable Plan | Non-Accountable Plan |
|---|---|---|
| Substantiation Required | Yes | No |
| Return of Excess | Yes | No |
| Tax Treatment | Not taxable | Taxable |
| Recordkeeping | Detailed records required | Simplified administration |
Related Terms
- Per Diem: A daily allowance provided to employees for travel expenses.
- Expense Report: A form used by employees to track and itemize expenses incurred during business activities.
- Business Expenses: Costs that are ordinary and necessary for the operation of a business.
FAQs
What happens if an employee fails to provide documentation under an accountable plan?
Are there any limits to the amount an employer can reimburse under an accountable plan?
How does the IRS define a 'reasonable timeframe' for substantiating expenses?
References
- IRS Publication 463 (Travel, Gift, and Car Expenses)
- IRS Topic No. 514 - Employee Business Expenses
- Internal Revenue Code, Section 62(c)
Summary
Employee reimbursements are critical for managing business expenses and ensuring employees are not out-of-pocket for job-related costs. Recognizing the distinct differences between accountable and non-accountable plans is essential for accurate tax reporting and compliance. By leveraging structured reimbursement policies, businesses can better manage expenses while complying with regulatory requirements.
