ABC Taxes, Tips & Tools

Employee reim­burse­ment for tools under an account­able plan

Employ­ees can be reim­bursed for busi­ness expenses under an account­able plan.  For an expense to be reim­bursable under an account­able plan,

1. the employee must incur the expense as a result of per­form­ing ser­vices for the employer,
2. must ade­quately sub­stan­ti­ate the expense, and
3. must ade­quately account for the expenses in a rea­son­able amount of time.

Many dif­fer­ent employee expenses may qual­ify as busi­ness related expense : Travel by the employee on behalf of their employer, use of the employee’s per­sonal vehi­cle at the behest of their employer, the use of a home office if it is at the con­ve­nience of the employer, etc.

Ade­quate records for the expenses must be kept; the employee needs to give things like receipts and mileage logs to sub­stan­ti­ate the expenses as part of their account­ing and the employer needs to retain such infor­ma­tion with their tax records.

The rea­son­able amount of time is based on the par­tic­u­lar cir­cum­stance, how­ever the fol­low­ing will gen­er­ally be true: An employee can receive an advance within 30 days before incur­ring the expense, can account for the expense within 60 days of incur­ring the expense, must return excess cash advanced within 120 days of incur­ring it; alter­na­tively employer gives an at least quar­terly state­ment ask­ing for account­ing and reim­burse­ment and the employee has 120 days from that state­ment to comply.

Expenses reim­bursed under an account­able plan are not included in wages.

Reim­burse­ments to employ­ees for buy­ing and main­tain­ing equip­ment are also tax-free if they are part of an account­able plan.

Just like all other reim­bursable employee busi­ness expenses there must be a busi­ness con­nec­tion, proper sub­stan­ti­a­tion of the employ­ees pur­chases, timely report­ing of the expenses and timely return of excess reimbursement.

As always, small busi­ness ser­vices and tax­a­tion are our busi­ness. If you have any ques­tions about set­ting up an account­able plan for reim­burs­ing employ­ees, ques­tions whether or not an employee expense is a reim­bursable or deductible employee busi­ness expense,  or if you need other help Please give Art & Busi­ness Con­sult­ing a call.  We would love to engage you as a client.

The usual dis­claimers: Although ABC has made every effort to insure the accu­racy of Taxes, Tips and Tools, mis­in­for­ma­tion, dis­in­for­ma­tion, changes, mis­takes, typos and hack­ers hap­pen, there­fore Art & Busi­ness Con­sult­ing LLC takes no respon­si­bil­ity for any action taken or results based on the infor­ma­tion sup­plied here in.  Inter­nal Rev­enue Ser­vice Cir­cu­lar 230 Dis­clo­sure:  As pro­vided for in Trea­sury reg­u­la­tions, advice (if any) relat­ing to fed­eral taxes that is con­tained in this com­mu­ni­ca­tion (includ­ing attach­ments) is not intended or writ­ten to be used, and can­not be used for the pur­pose of (1) avoid­ing penal­ties under the Inter­nal Rev­enue Code or (2) pro­mot­ing, mar­ket­ing or rec­om­mend­ing to another party any plan or arrange­ment address herein.  Art & Busi­ness Con­sult­ing LLC cur­rently does not have a cer­ti­fied pub­lic accoun­tant or an attor­ney on staff; this infor­ma­tion is purely for edu­ca­tional pur­poses and not to be con­strued as legal or finan­cial advice.  Art & Busi­ness Con­sult­ing LLC and its employ­ees, mem­bers and asso­ciates are not engage to prac­tice law; you always should dis­cuss legal mat­ters with your attor­ney before talk­ing to any­one else.

Tags: accountable plan, employee business expense, employee reimbursement

This entry was posted on Sunday, January 17th, 2010 at 2:24 pm and is filed under Business Taxes, HR Info, Individual Taxes. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.