Reimbursements are a way to pay an employee back after that employee spent their own money on business expenses.
Two examples of these expenses include:
- Travel costs including flights, car rentals, lodging, and meals.
- The costs of office supplies.
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Are reimbursements taxable to the employee?
In general, reimbursements are not taxable to the employee because you’re simply paying back them back for money they spent on company-related expenses.
It’s often best to set up an “accountable plan,” as described below, so that the expense can be treated as a non-taxable reimbursement.
How do I set up an accountable plan for reimbursements?
To have up an accountable plan for reimbursements, you need to set up a process by which you:
- Make sure the expense that was incurred was for a business reason. Personal expenses, such as a gift for a family member purchased while on a business trip, do not apply.
- Receive proof, typically in the form of a receipt, that the expense was incurred. This proof must be received within a reasonable period after the money was spent.
- Are paid back any amount of money you gave to the employee for expenses which they did not spend.
Can I deduct the amount I reimburse employees from my taxes?
That really depends on whether the item you’re reimbursing was a deductible business expense under the IRS’ rules.
Make sure to check this IRS document, as well as an experienced tax advisor, to make sure before you deduct.