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Worker Expense Reimbursement: Definition, Taxes, Coverage

Does this sound acquainted? You ask an worker to run a couple of errands for the workplace. They find yourself with a $10.79 espresso store invoice, $56.99 on the workplace provide retailer, and $25.28 at a neighborhood pizza joint. Positive, you intend to repay them. However how a lot have you learnt about worker expense reimbursement?

Receipt submission, compensation, and taxes are all issues to contemplate. With the right expense report process, you’ll be able to stop confusion and align your staff. 

What’s an worker expense reimbursement?

An worker expense reimbursement is cash employers give to cowl sure business-related prices. For instance, an worker who runs enterprise errands may request a mileage reimbursement to cowl fuel. 

Federal regulation doesn’t require reimbursements (until the bills trigger the worker’s pay to drop beneath minimal wage). However, paying staff again for enterprise bills is frequent in lots of corporations. To not point out, some states, together with California and Iowa, require sure expense reimbursements. 

Forms of expense reimbursements embrace:

Earlier than you reimburse staff for enterprise bills, you want a coverage detailing the method. You additionally should know whether or not or to not withhold taxes from the quantity. 

Reimbursement of bills: Taxes

So, are reimbursements taxable? Typically, reimbursements will not be taxable—however it all depends upon your plan kind. 

There are a couple of kinds of plans companies can use for reimbursements:

  1. Accountable: Reimbursements aren’t taxable
  2. Nonaccountable: Reimbursements are taxable
  3. Per diem: Reimbursements as much as a specific amount aren’t taxable

Taxable reimbursements are topic to revenue, FICA, and unemployment taxes. 

Accountable plan

Reimbursements paid underneath an accountable plan will not be topic to taxes. To be thought of an accountable plan, the worker should: 

  1. Have paid or incurred allowable bills whereas performing providers (and, it’s a cost for the expense and never an quantity you’d have in any other case paid to the worker as wages), 
  2. Substantiate the quantity, time, place, and goal of the expense inside an inexpensive interval (i.e., inside 60 days after incurring it), AND
  3. Return any quantity over the substantiated expense inside an inexpensive time (i.e., inside 120 days after incurring it)

Beneath an accountable plan, it’s best to reimburse staff inside 30 days of after they incur the expense. 

Say an worker spent $29.99 on a brand new enterprise laptop computer charger. They offer you a receipt inside 60 days that particulars the quantity, time, place, and goal. You reimburse them $29.99, the precise value of the charger. This kind of reimbursement falls underneath an accountable plan and isn’t topic to taxes.

Nonaccountable plan

Reimbursements paid underneath a nonaccountable plan are topic to taxes. You will have a nonaccountable plan if:

  • The worker doesn’t need to substantiate bills inside an inexpensive time
  • The worker isn’t required to return extra quantities inside a sure period of time
  • You pay an quantity no matter whether or not you anticipate the worker to have a enterprise expense
  • You pay an quantity you’d in any other case pay as wages

Let’s say an worker requests reimbursement for fuel however doesn’t present a receipt. You pay a lump sum of $50, which can be higher than their enterprise expense. This kind of reimbursement falls underneath a nonaccountable plan and is topic to taxes. 

Per diem

Per diem is a set allowance that covers travel-related bills (e.g., lodging, meals, and incidentals). 

There may be a longtime per diem price. Reimbursements beneath this price aren’t taxable. Nevertheless, you could nonetheless report these nontaxable funds in field 12 of Type W-2 utilizing code “L.” Try the U.S. Normal Providers Administration web site for the present per diem charges. 

Any quantity that exceeds the per diem charges is topic to taxes. 

Creating an worker reimbursement coverage

Create an expense reimbursement coverage so staff know what bills are reimbursable. Your coverage also needs to element the method for submitting expense reimbursement requests. And let staff know when and the way they’ll anticipate their reimbursement.

Listed below are some questions your reimbursement coverage ought to reply:

  • Who’s eligible? 
  • What are coated work bills?
  • Are there reimbursement limits?
  • How do staff submit reimbursement requests?
  • What kind of knowledge do staff must substantiate? (e.g., quantity, time, place, goal)
  • How do staff obtain reimbursements? (e.g., within the subsequent payroll?)

SHRM, the Society for Human Useful resource Administration, supplies a pattern expense reimbursement coverage. Their instance consists of 4 sections: goal/goal, eligibility, coated bills, and procedures. 


Right here’s an instance of an worker expense reimbursement coverage:

Expense reimbursement policy example: Eligibility, covered expenses, procedures

Course of for paying reimbursement bills 

Dealing with reimbursement claims, payouts, and information can shortly turn out to be a full-time job in the event you don’t have a course of. 

Expense report 

An expense report is a kind staff use to trace their purchases. Staff can full the expense report and switch it in with their receipts.

Sometimes, expense experiences ask for data like the acquisition date, quantity, and goal of the services or products. 

How ought to your expense report look? Check out the next expense report template:

expense report example

Reimbursement request submission

Determine how staff ought to submit their expense experiences and supporting paperwork, reminiscent of enterprise receipts and invoices. 

Set clear pointers surrounding:

  • Deadlines for submitting reimbursement requests
  • What kinds of supporting paperwork you settle for
  • How staff can submit receipts to you (e.g., by way of e-mail or a web-based portal)

Reimbursement approval

Determine who will approve (or deny) reimbursement requests. Will it’s you or an HR skilled? 

Your causes for approving or denying a declare ought to align with what’s in your coverage. For instance, you may deny a declare if the worker doesn’t present their authentic receipt. 

Additionally, determine what occurs in the event you deny a request (e.g., in the event you’ll let staff resubmit their reimbursement declare). 

Paying out the reimbursement 

How will you pay staff again? And, how quickly will you give staff their reimbursement?

Typically, employers mix reimbursement funds with the worker’s common earnings in payroll. Which means you’ll be able to pay an expense reimbursement on the identical test or direct deposit with the worker’s taxable earnings. To simplify this course of, think about using on-line payroll. 


Paying out the reimbursement doesn’t imply you’ll be able to throw away the expense report and receipts. 

Retailer information securely so you’ll be able to substantiate your small business claims (like small enterprise tax returns). You need to use HR software program to handle paperless recordsdata for workers. And, some accounting software program enables you to securely add recordsdata and receipts to connect to the transactions in your books. 

Are you searching for a greater method to pay out reimbursements? Strive Patriot’s payroll software program and run payroll utilizing our simple three-step course of. Enroll in the present day and revel in a free trial!

This isn’t meant as authorized recommendation; for extra data, please click on right here.


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