Unless your company has an accountable plan, reimbursements to employees for business-related expenses are subject to income- and payroll-tax withholding. In other words, employees get taxed twice! An accountable plan is easy to set up; no IRS forms need to be filed. However, under your accountable plan:
- Payments must be for “ordinary and necessary” business expenses, such as airfare and lodging.
- Employees must substantiate expenses – including amounts, times, places, and purposes – ideally within 60 days.
- Workers must return any advances or allowances they can’t substantiate within a reasonable time (typically 120 days).
Other rules and limits apply. Contact us for details.