Hiring Employees
Employee Business Expenses (Accountable/Non-Accountable Reimbursements Plans)
A reimbursement or allowance arrangement is a system by which you
substantiate and pay the advances, reimbursements, and charges for your employees' business
expenses. How you report a reimbursement or allowance amount depends on whether it is an
accountable or a non-accountable plan.
Accountable plan: To be an accountable plan, your
reimbursement or allowance arrangement must require your employees to meet all three of
the following rules.
1) They must have paid or incurred deductible expenses while
performing services as your employees.
2) They must adequately account to you for these expenses within a
reasonable period of time.
3) They must return any amounts in excess of expenses within a
reasonable period of time.
Amounts paid under an accountable plan are not wages and are
not subject to income tax withholding and payment of social security, Medicare, and
federal unemployment taxes.
Non-accountable plan: Payments to your employees for travel
and other necessary expenses of your business under a non-accountable plan are
wages and subject to income tax withholding and payment of social security, Medicare, and
FUTA taxes. Your payments are treated as paid under a non-accountable plan if:
1) Your employee is not required to or does not substantiate timely
those expenses to you with receipts or other documentation, or
2) You advance an amount to your employee for business expenses and
your employee is not required to or does not return timely any amount he or she does not
use for business expenses.
For more information about reporting reimbursements, see Table
11-1 Reporting Reimbursements, in Publication 535.
Important References:
Publication
15
(Circular E), Employer's Tax Guide
Publication
535
Business Expenses
Schedule
C (Form 1040) Profit or Loss from Business
Form
1120
U.S. Corporation Income Tax Return
