Have employees provide the necessary details of their expenses within 60 days after they paid the expenses.Give employees an advance within 30 days before they’ll pay the expenses.There is no fixed definition for a “reasonable” amount of time, as the time period depends on the circumstances.
Otherwise, the IRS could see your reimbursements as taxable wages. Make sure your plan is considered an “accountable plan” to qualify for tax deductions. This amount becomes subject to taxation in the next payroll period. However, if the expenses do not meet the above criteria, the employee reimbursement is treated as paid under a nonaccountable plan. The employee must pay back any excess amount of reimbursement (if the employer paid the employee more than the employee spent) within a reasonable timeframe.Įmployee reimbursements paid under an accountable plan are not considered wages, so these payments are not subject to any taxation.Business expenses must be submitted within a reasonable amount of time after the expenses occurred. The evidence must outline the amount of the expense, when and where the employee incurred the expense, and the purpose of the expense. The employee must provide evidence to substantiate the business expenses.The reimbursement must apply specifically to the expenses and cannot be an amount that would have been considered the employee’s wages. The employee must pay or incur the allowable expense while performing services for their employer.To qualify as an accountable plan, an expense reimbursement policy must meet the following conditions: According to the IRS Employer’s Tax Guide (Publication 15), if the business has an “accountable plan,” it doesn’t have to count expense reimbursements as part of its employees’ wages. Employees are usually not required to report expense reimbursements as either income or wages. How do employee expense reimbursements work?Įmployee expense reimbursement is when employers pay funds back to employees who have used their own money to pay for business-related expenses.
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