What Is an Accountable Plan?

An accountable plan is a method for reimbursing employees for any business-related out-of-pocket expenses on a non-taxable basis. If the Internal Revenue Service's (IRS) requirements are met, reimbursements for eligible business expenses do not count as income, meaning they are not subject to 澳洲幸运5开奖号码历史查询:withholding taxes or W-2 reporting.

How an Accountable Plan Works

An accountable plan is a method of reimbursing employees fꦉor their work-related costs without subjecting the payment to tax.

According to IRS rules, under an accountable plan, expenses are reimbursed if they are business-related and are adequately accounted for. In addition, amounts paid in excess of actual costs must be returned to the company within a specified timeframe. If not, they may be taxable.

Business-related expenses incurred by employees can include such things as travel, meals, lodging, entertainment, or transportation. Employees are required to adequately account for expenses with records.

Employers are not requ🍷ired to submit the details of their plan to the IRS, but they must be able to demonst𒆙rate that they meet the requirements of an accountable plan.

Accountable Plan vs. Non-Accountable Plan

If a business' reimbursement plan does not follow IRS requirements for an accountable plan, the plan is non-accountable. With a non-accountable plan, reimbursement for expenses is considered part of the employee's compensation and therefore is subject to withholding and must be reported on an employee's W-2 form.

Requirements for an Accountable Plan

The requirements for an accountable plan are that they are business-related, that employee expenses are adequately accounted to their employer in a reasonable and timely fashion, and that any excess reimbursement must be returned to the employer within a reasonable amount of time.

Business Expense vs. Personal Expense

For expenses to be considered business-related, they must be incurred within the course of employment. Any expense that blends between a personal expense and a business expense is appropriately accounted for as such, splitting the expense between the employer and the employee.

A common example is that of a personal car that is used for business trips: in such a case, an employee may be expected to account for the miles that were incurred during the course of their personal transportation and work-related transportation, splitting the costs appropriately. 

Proof

Adequate accounting is typically subject to third-party confirmation for the purposes of proving that employees' funds were business-related. Receipts are a common form of third-party substantiation that employees will use to prove the legitimacy of their funding requests.

However, there are exceptions to this rule, including cases of non-lodging costs that amount to less than $75, meal reimbursement that falls within IRS per diem standards, and transportation costs for which obtaining an official proof of payment is difficult, such as taxis, subways, and buses.

Excess Reimbursements

If the employee is reimbursed too much, the excess amount must be returned within 120 days. Excess reimbursements can happen, say, when an employee is given an advance before going on a business trip. There is a chance the employee doesn't spend all the money, in which case whatever is left must be returned to the company.

Reasonable Periods of Time

The IRS offersꦦ the following examples as a guide for ꦍwhen certain actions must be completed:

• An advance is received within 30 days of the time the employee pays or incurs the expense.
• Employees adequately account for their expenses within 60 days after the expenses were paid or incurred.
• Employees return any excess reimbursement within 120 days after the expenses were paid or incurred.
  

The Bottom Line

An accountable plan is a way to reimburse workers for business expenses without subjecting them to income taxes on these payments. To qualify for tax-free status, these reimbursements must meet specific IRS requirements. Requirements include that the expense was business-related, adequately accounted for in a💯 reasonable and timely fashion, and that any excess amounts were returned.

Employers are not required to report all the transactions in ♓the plan to the IRS. However, they must keep good records in the event they get audited.