An accountable plan is an arrangement that lets you reimburse your employees for expenses incurred on behalf of your company, such as driving to the post office or supply store. With a properly administered plan, you can deduct the reimbursements on your business tax return; yet the payments are not considered income to your employees.
How can you make sure your plan qualifies?
- First, the reimbursements must be for allowable business expenses. For instance, you can repay employees for hotel and other travel expenses when traveling to a trade convention.
- Second, your employees need to keep records of the expenses and provide those records to you.
- Third, if you pay or advance your employees more than the amounts spent on business items, the extra must be returned, generally within 120 days. Amounts not returned to you are income to your employee, and are subject to payroll taxes.
The requirements are applied to each employee, and you can have more than one plan.
Contact us to discuss your policies for repaying employees’ business expenses. We’ll help you make your plan accountable.