Reimbursing employees for business expenses seems straightforward, but without a clear plan, the IRS can view those reimbursements as taxable income. That’s money out of your employees’ pockets and your business.
A well-defined accountability plan isn’t just paperwork. It’s a safeguard. It ensures employees are fairly reimbursed, expenses are deductible, and your business avoids costly IRS adjustments.
What is an Accountability Plan?
An accountability plan is a set of rules your business follows to reimburse employees for work-related expenses. When done right, these reimbursements aren’t taxed as income, and your business can claim the deduction.
The key is meeting IRS requirements so reimbursements are legitimate and protected
Why It Matters
Before the Tax Cuts and Jobs Act (TCJA), employees could claim expenses on Form 2016 and offset taxable income with deductions. Post-TCJA, that workaround was disallowed—making an accountability plan essential for:
▹ Tax-Free Reimbursements: Employees aren’t taxed on properly reimbursed expenses.
▹ Deductible Expenses: Businesses can deduct these costs without complications.
▹ Financial Protection: Avoid costly IRS adjustments and penalties.
Requirements of an Accountable Plan
To qualify under IRS rules, an accountable plan must meet three requirements:
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Business Connection:
Expenses must be incurred while performing employee duties. -
Substantiation:
Employees must provide receipts, logs, or other documentation within a reasonable period. -
Return of Excess:
Any excess reimbursement beyond substantiated expenses must be returned within a set timeframe.
Common Expenses That Qualify
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Home office costs
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Travel and meals for business trips
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Personal vehicle use for work
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Supplies, tools, and essential equipment
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Phone and internet expenses
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Professional dues, subscriptions, and licensing fees
Making It Real: Templates and SOPs
A practical system turns rules into action. For example:
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Expense Reports: Employees submit by the 15th of the following month with receipts.
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Approval: Managers review within five business days and forward to accounting.
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Reimbursement: Processed bi-weekly through direct deposit.
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Excess Funds: Returned within 30 days; accounting notified immediately.
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Record Keeping: All reports and receipts kept for at least three years by accounting.
This approach removes guesswork and ensures consistency. Employees know what’s expected, and your business stays compliant.
Take Action
Setting up an accountable plan doesn’t have to be complicated. We can help you:
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Build customized expense report templates
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Create detailed SOPs for managing expenses
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Ensure full IRS compliance
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Train your team on proper procedures
The result is peace of mind. Employees are reimbursed correctly, your business maximizes deductions, and you minimize risk.
Bottom Line: A strong accountability plan protects your people and your profits. If you want to stop losing money to the IRS and streamline your expense management, let’s set up a plan that works for your business.
Contact us today to streamline your expense management and ensure tax compliance!
