Reimbursable Plan

[Gretel]

I have trouble grasping the concept of what expenses need to have a reimbursable plan and what expenses are just reimbursed. The only thing I am sure about is out-of-town travel (if paid with cash given from company or cash used by employee) and, for a S-Corp. owner, OIH expenses.

What about these expenses if paid by employee:

Gas for company truck
Office expenses
Meals for out of town work but not overnight

How does the picture change if a company credit card is used:

for out-of-town travel
for any of the other expenses

How about expense reports? Needed if company credit card is used?

I am pretty sure that reimbursed office expenses don't need a reimbursable plan.

[erchess]

hmmmm

I assume that what you mean is an employee or owner of a company is paying expenses out of pocket and you're wanting the business to be able to reimburse and deduct the expenses without counting these funds as wages of the employee or owner.

I don't see how you get there without an accountable plan. Maybe I will get corrected again but I am absolutely sure the accountable plan will achieve the results wanted.

[Gretel]

Yes, Erchess, your assumption is right. But does a company need an accountable plan for every expense reimbursed, no matter what?

What about expense reports? Only needed for travel expenses reimbursed or also needed if pay with company credit card?

So you would set up an accountable plan if just office expenses and gas for company truck is reimbursed?

[erchess]

Accountable Plan

Let's see if anyone else has a different opinion. My thinking is that an accountable plan is necessary if you want to reimburse expenses without adding to taxable income for the employee. I could be wrong.

An even easier way to do it is for the business to give the employee a credit or debit card for which the company will get the bills. I don't think that requires an accountable plan.

[JG EA]

In a "plan" usually there is money given in advance (or a credit card) and that money needs to be accounted for and excess paid back, etc.

In reimbursement, the one who spent the money is askiing the company for reimbursement, the company decides it is OK, gets the receipt to categorize. No plan here is needed. My opinion anyway.

[AJsTax]

In a "plan" usually there is money given in advance (or a credit card) and that money needs to be accounted for and excess paid back, etc.

In reimbursement, the one who spent the money is askiing the company for reimbursement, the company decides it is OK, gets the receipt to categorize. No plan here is needed. My opinion anyway.

It depends what you call a plan. Either way you had best have an item in the Corp (S-corp also) minutes that states what will be reimbursed to the employee/owner and be sure there is written proof that he paid a bill and was reimbursed for that bill or it will be added to his income. That I call a plan. An expense account plan would be harder to enforce when you give out the money first, then have to prove expenses and pay back the excess to the company.

[Gretel]

So what is the difference to having Petty cash - employee brings receipt and gets reimbursed - and having to establish a reimbursable plan? Is a reimbursable plan for travel expenses only?

I know the IRS is mainly concerned about not accounting for the return of advances if not used for travel.

Maybe any reimbursement for an actual receipt for gas, meals and office supplies could be paid through Petty Cash?

I am talking about employees other than the Corporation S/H.

[AJsTax]

Reimbursing an employee for expenses that he turns in is a reimbursable plan.
An accountable plan requires the employee to document all expenses and return any advances not used. Does not matter what the expenses incurred where. As long as they were business expenses. Any funds not returned accounted for or returned to employer ends up on the W-2 of the employee.

[Davc]

Meals for out of town work but not overnight

Generally if reimbursed, those meals would go as wages to the employee.

[mactoolsix]

IRS Rules

Accountable Plan Rules:

http://www.irs.gov/taxtopics/tc514.html

(From the employees perspective)
If your employer reimbursed you or gave you an advance or allowance for your employee business expenses that is treated as paid under an accountable plan, the payment should not be shown on your Form W-2 (PDF) as pay. You do not include the payment in your income, and you may not deduct any of the reimbursed amounts.

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all three of the following rules:

1. You must have paid or incurred expenses that are deductible while performing services as an employee.
2. You must adequately account to your employer for these expenses within a reasonable time period, and
3. You must return any excess reimbursement or allowance within a reasonable time period.

If your employer's reimbursement arrangement does not meet all three requirements, the payments you receive should be included in the wages shown on your Form W–2. You must report the payments as income, and you must complete Form 2106 (PDF) or Form 2106-EZ (PDF) and itemize your deductions to deduct your expenses.



As for meals:
Per IRS regulations, the value of employer-provided meals and reimbursement for meals
are included in the taxable income of the employee, unless there is some provision that
allows for the meal to be excluded from taxable income. A meal may be excluded from
the taxable income of the employee if the meal is a result of the employee traveling away
from home overnight on business. A meal may also be excluded from the taxable income
of the employee if the meal is for the convenience of the employer. For meals to be
excludable from taxable income, the amount reimbursed for a meal must be paid under an
accountable plan. The accountable plan must meet the following: there is a business
connection, the employee must substantiate the expense, and the employee must return
any excess amounts. “For IRS information about meal reimbursements see Circular E,
Employer’s Tax Guide (Publication 15), Employer’s Tax Guide to Fringe Benefits
(Publication 15-B, and Publication 463, Travel, Entertainment, Gift, and Car Expense.”

A simple Accountable Plan Document:

http://www.betterbusinessventures.com/Sample_Accountable_Plan_1_.pdf

Why not fill one out, include it in the minutes, and then follow the rules?

So, back to the original question . . .
Gas for the truck and office expenses would be reimbursed by the company, and not W2 income for the employee.

Since the meals were not for an overnight stay, they would have to be for the "convience of the employer" and part of the accountable plan. Then the 50% meal allowance rule kicks in for the employer, but no W2 income for the employee. Example: PG&E regularly provides meals for linemen working late to repair storm damage. It keeps them on the job for the convience of the employer.

I think the credit card is simply a method of payment. Providing all the rules are followed for the accountable plan, it merely simplifies the reimbursement (there would be none). However, if there is no accountable plan, or the expense doesn't fall within the guidelines, then the credit card could create a bit of an accounting problem.

Agreements?

[Gretel]

Thank you so much for posting this, Mactoolsix. It's in line with my thinking and I was relieved. But then I looked over the sample plan (I have used a different one before) and on the bottom it talks about exclusions and to have a "separate expense reimbursement policy" for those.

Why would any company want to do this? What kind of expenses would that be?

[Davc]

Why would any company want to do this? What kind of expenses would that be?

Reimbursed Partnership Expenses would be one example.