As the owner of a business, you are aware of the never ending expenses of conducting business. What happens if you or an employee must absorb some of the business expenses?

Accountable Plan vs. Non-Accountable Plan

An accountable plan is one for which an employee is reimbursed or receives an “allowance” for expenses they incurred while conducting business on behalf of your business. Under an accountable plan, the reimbursements are not income to the employee; therefore, not reported in the W2. The following conditions must be met to be deemed an accountable plan:

  • There must be a business condition for the expense
    • The expense must be in connection with the performance of services as an employee
    • The reimbursement must be for an expense the employee could deduct in his/her tax return
  • The employee must substantiate or be deemed to have substantiated the expenses
    • Receipts
    • Tracking mileage for business purposes
    • Per Diem
  • The employee must return any amounts in excess of the expenses they substantiated to the employer within a reasonable time frame
    • Two methods for determining reasonable time:
      • Periodic Statement: A statement from the employer is provided to the employee at least once a quarter detailing the amounts paid under the plan and the amount provided the employee in the form of allowance and requests the employee to substantiate the remaining amount or return the excess within 120 days from the date of the statement
      • Fixed Date: Advance payments – 30 days before the reasonably anticipated expenses are paid or incurred. Substantiation – 60 days after expenses are paid or incurred. Return of excess amounts – 120 days after expenses are paid or incurred

A non-accountable plan is a reimbursement plan or policy that does not meet the above requirements to be deemed accountable. Any amount reimbursed the employee under a non-accountable plan is income to the employee, is subject to income tax withholding, and must be reported as wages on the employee’s W2.

Here at GPL, we use our knowledge to examine every tax reduction strategy afforded you.