Most employers are in the practice of reimbursing their employees for business expenses, but did you know that the form that reimbursement takes can now cost you in tax dollars? If you’re going to pay back any of your employees for work-related expenses this year – and every year after until 2025 – you should use an Accountable Plan to save both you and your employees money.
Due to the Tax Cuts and Jobs Act, miscellaneous itemized deductions can no longer be written off by employees, which means that any reimbursement given to an employee outside of an Accountable Plan will be counted as income and subject to income tax withholding. Similarity, both the employer and the employee will also be charged an employment tax for any non-accountable reimbursements.
So, what is an Accountable Plan?
Essentially, an Accountable Plan is a prearranged amount set by an employer for his or her employees to use for work expenses, such as traveling to a company conference. The money must be used strictly for business expenses only, and any excess amount leftover must be promptly returned to the employer. Lastly, to prove to the IRS that you indeed do have an Accountable Plan in place, you must typically supply records with the amounts set in writing, while documentation such as receipts should be supplied to confirm the expense costs.
According to the IRS, if all of these conditions are met, than the reimbursement is no longer taxable beyond a 50% deduction for meal expenses.
Setting up an Accountable Plan is relatively simple, and doing so leaves a business with nothing to lose – saving both you and your employees on tax. So, what are you waiting for? Meet with your accountant today to put a plan in place for your own company, and start saving tax dollars.
