Recently returning from a business trip, it gave me the idea to write a blog about what’s needed for a company expense reimbursement policy.
A good expense reimbursement policy will entail the following:
- Clearly states all reimbursable expenses must be work related
- Requires substantiation/receipts of work related expenses
- Receipts must be submitted within xx days of the expense (the IRS requires receipts and reimbursements be made within a “reasonable” amount of time)
- Return any employer advance in excess of business expenses (or report excess on W-2).
- Expense Report that must be signed by supervisor and detail reasons for each claimed expense.
Make sure you know the expenses that unequivocally cannot be deducted according to the IRS (not a complete list)
The IRS issued Topic 514 that discusses Employee Business Expenses in greater detail.
Just because an employee incurred an expense during the course of business travel, doesn’t necessarily mean that the expense is automatically a business expense. For example, let’s say an employee, Joe goes to Los Angeles for a business trip and arrives at 1:00PM Monday. Joe then goes to Disneyland because there are no business meetings until Tuesday. The cost of the Disneyland ticket is NOT a reimbursable business expense. If your nonprofit decides to reimburse the employee, that may be considered taxable income to the employee. The unrelated REIMBURSED expense may also have negative tax consequences for the nonprofit (and if excessive may jeopardize the nonprofit’s 501(c)(3) status.
There are usually two different methods used to reimburse employees for business expenses.
- Direct reimbursement plan/Accountable Plan (not on W-2)
- Federal per diem rates (Report on Box 12 of W-2 if reimbursement rate exceeds Federal Rate) – Insert Publication 1542
-For information on travel, entertainment, gift, car expenses & mileage rates refer to IRS Publication 463
If you would like a FREE copy of our “Expense Report” in spreadsheet form, just email support@apolossoftware.com.
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