Reimbursing Expenses Part 1:
It is common for a company or church to reimburse employees for business expenses they have personally paid. However, there are specific rules which must be followed when reimbursing these business expenses. In order for the reimbursement to fall under an approved Accountable Reimbursement Plan:
- They must be business related
- The employee must substantiate the expenses incurred (with sufficient detail for each expense)
- Any excess amount (of an advance) must be returned in a reasonable amount of time
While a common practice, paying an employee an “expense allowance,” “gas allowance,” “auto allowance” etc. does not qualify under the accountable reimbursement rules.
The same guidelines above must be followed when an employee uses a church debit or credit card. The employee can write the detail on the receipt (and turn it in), credit card statement, or an expense report. There are also apps available to help track business expenses.
Failure to follow these IRS guidelines will make the reimbursements fall under a “non-accountable” plan and by default make them taxable to the employee. IRS Publication 1828 provides additional detail.
If you would like a sample Accountable Reimbursement Plan to adopt, please email me, and I will send one to you. Next month, I will discuss other issues regarding reimbursing expenses.
Delano Sherley is a CPA and president of Delano Sherley & Associates, Inc. He can be reached at 513-737-1314. Delano Sherley & Associates, Inc., 3189 Princeton Road, Suite 228, Hamilton, OH 45011. Email: Delano@dsacpainc.com Website: www.dsacpainc.com