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Does your company reimburse employees for home internet, mobile phone, or other work from home expenses? That’s fantastic! You want to make it as easy as possible for the employee to be reimbursed while at the same time making it easy for the company to process and issue the reimbursement. This is why Gusto’s recurring reimbursement feature is so tempting. Just take a look at this screenshot from Gusto:
Put in an amount, and now the employee the reimbursement was created for will receive a reimbursement payout each pay period. Simple right? Maybe too simple?
Here’s the potential gotcha, at least for US companies:
Employee reimbursements must be part of an accountable plan for the reimbursement to be non-taxable.
Let’s look at what the Journal of Accountancy published in Feb 2020 (https://www.journalofaccountancy.com/issues/2020/feb/employee-expenses-accountable-plan.html)
"To offer an accountable plan, an employer must comply with three standards:
* The expenses must have a business connection;
* The expenses must be substantiated within a reasonable period; and
* The employee must return any money not spent to the employer, also within a reasonable period.
If any of the three conditions isn't met, the reimbursement arrangement is treated as a nonaccountable plan. In other words, the reimbursements are taxable compensation to the employee and subject to employment taxes."
If Gusto (or any other payroll service) is being used to issue the reimbursement and the company has a separate means to ensure the accountable plan steps are covered, the company and the employee are all set.
However, if the employee is not substantiating the expenses and returning any excess, the accountable plan requirements are not met. This puts the company and the employee at risk of not properly accounting for these expenses.
This applies to not just recurring work-from-home expenses but also one-off meal reimbursements and any other out of pocket expenses that employees should be reimbursed.
The takeaway here is to look at your employee reimbursement process and determine if it meets the accountable plan requirements properly. If the payroll provider option isn’t fully meeting the need, you could look at how Reimbi makes it remarkably easy for employees and the company to properly manage reimbursements, including meeting the IRS accountable plan requirements.
The information contained in this post is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. Please consult with an accountant or an attorney for current tax or legal advice.
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