Accountable Plans A plan under which an employee is reimbursed for expenses or receives an allowance to cover expenses is an accountable plan only if the following conditions are satisfied: the reimbursement must be for an expense the employee could deduct on his/her tax return.

What is an accountable employee expense reimbursement plan?

An accountable plan is an expense reimbursement or allowance arrangement that requires employees to substantiate expenses and return unsubstantiated advances. In general, employers maintain employee expense reimbursement plans on a company-wide basis. But the tax rules are applied on an employee-by-employee basis.

Is employee cell phone reimbursement taxable?

In an audit guidance for its examiners, the IRS stated that when employers give money to employees as reimbursement for business use of a personal cell phone, that money is not taxable.

What makes an employee reimbursement plan an accountable plan?

To be an Accountable plan, the reimbursement must require the Employee to meet the following three criteria: The Employee must have paid or incurred deductible expenses while performing services as your Employees. Only actual business expenses can be reimbursed.

When does employee expense reimbursement count as taxable income?

Expenses incurred by employees in the course of business should be costs incurred by the employer, not by its employees. If the employer establishes a written accountable plan, and the employees submit properly documented expenses under that plan, then the reimbursements shouldn’t count as taxable income.

Do you have to reimburse employees for business expenses?

While expense reimbursement is only required if it is stipulated in an employment contract or if the business expenses bring the employee’s wages below minimum wage, most businesses reimburse work-related expenses incurred by employees as a job perk. Be aware, however, that some states have their own laws surrounding expense reimbursement.

Do you have to report employee reimbursement to IRS?

The IRS has different reporting requirements depending on whether you have an accountable or nonaccountable plan. If you haven’t revisited your employee expense reimbursement policies recently, some business expenses may no longer qualify for an accountable plan.