What is an accountable reimbursement plan?

An accountable reimbursement plan is a method of reimbursing employees for business expenses paid with personal funds. To be considered an accountable plan by the IRS, it must follow these rules:

• The expenses must be related to business. This means that if you did not use your personal funds to pay for this, the expenses must have been otherwise deductible.
  
• You must provide documentation of the expense to your employer with a reasonable period of time. This means you should not wait till the end of the year to reimburse you or your employees under this plan. If you are the sole shareholder of your s corporation you are considered both the employer and the employee. You as the employee must provide this documentation to the business.
  
• If you were excessively reimbursed, the overpayment must be returned to the employer within a reasonable period of time. This seldom applies to sole shareholders as they barely give themselves an advance.
  

What is considered reasonable time

The definition of reasonable time is based on “facts” and “circumstances”. This is just a fancy way of saying the IRS defines reasonable time based on your personal situation. However, regardless of situation the following is generally considered to be a reasonable time:

• Within 60 days of cash spent
  
• Within 30 days if the advance method is used. An advance is money that your employer gives you to cover business expenses rather than using your personal cash. All excessive funds must be refunded if the plan is to maintain its status.
  
• Quarterly if your employer provides a statement asking you to account for or return excessive cash. You must provide accountability within 120 days of the statement.
  

If your plan meet the requirements discussed above, then the cash you receive as reimbursement for business expenses do not have to be included as wages.

Any expenses that do not meet these rules are treated as been reimbursed under a non-accountable reimbursement plan. When this happens then the employee has to record the reimbursement as wages. It is up you as the employee to deduct this amount as an itemized deduction on your tax return. If you do not itemize, you lose this deduction. To avoid this complication, make sure your accountable reimbursement plan is set up right.