An accountable plan is a type of reimbursement plan an employer sets up for their employees. There are two main advantages to these plans. The first is that it allows employers to deduct certain expenses their employees submit for reimbursement. The second is that reimbursements made to employees are done tax free and are not reported as W-2 wages.
Accountable Plan Requirements
The following are requirements the IRS has put in place for a plan to be considered accountable:
- Expenses must have a business connection.
- Employees must report expenses to the employer in a reasonable amount of time.
- Excess reimbursements must be returned within a reasonable time.
- Employees should provide documentation showing the nature of the reimbursed expense.
If your accountable plan does not comply with the IRS requirements, reimbursements made to employees are considered non-accountable and will be subject to payroll and income taxes.
Additionally, the IRS has given some further guidance on these requirements.
Employees must adequately account for travel, meals, and entertainment expenses. This can be done through receipts, account books, day planners, etc.
Reasonable time periods. Generally, reimbursements that take place within the following time frames are considered reasonable periods of time
- Advances within 30 days of when the employee pays or incurs the expense.
- Employees adequately account for expenses within 60 days after expenses were incurred.
- Employees return excess reimbursements within 120 days after expenses were incurred.
- At least quarterly statements given to the employee that asks them to return or account for outstanding advances - these must also comply within 120 days of the statement.
It is important that employees keep documentation of all requested reimbursements and make all requests in a timely manner.
Creating the plan
Accountable plans are fairly simple for employers to implement. Employers are not required to send any information or paperwork to the IRS but it is advisable to have the plan written out to show that the plan meets the requirements. The accountable plan should also include which expenses qualify for reimbursement. Some of the more commonly business related expenses claimed under accountable plans are meals, lodging, entertainment, transportation etc.
Maintaining good records
Accountable plan forms should be created in addition to the plan itself. It is a good idea to have a form employees must fill out to receive reimbursements. Additionally, it is important to keep records of receipts, statements, invoices, etc.
More information on accountable plans can be found on IRS Publication 535.