Spring 2008 issue of Horizons

INDUSTRy u

Contractors

Reimbursing Business Expenses

The end of one calendar year and the beginning of the next is a good time to revisit topics related to wages, W-2 reporting and expense reimbursements. Contractors frequently reimburse employees for travel, lodging, meals and other incidental expenses, and it is important to be aware of the requirements in this area. Reimbursed Business Expenses of the Employee An employer may reimburse an employee for travel, meals and entertainment expenses incurred while performing services for the employer. This reimbursement can and is done in many ways. At one end of the spectrum, employees are required to turn in receipts and other documentation in order to be reimbursed. At the other end, the employer may just give the employee an amount of money the employer believes is adequate to cover any expenses the employee may incur and not require the employee to report back on actual expenses incurred. In between, there are nearly as many separate methods as there are employers. As far as the IRS is concerned, all these reimbursement plans fit into two categories. Either the plan is an accountable plan or a non-accountable plan. The tax treatment of the reimbursement, for both the employer and the employee, depends on whether the employer has an accountable plan or a non-accountable plan. In an accountable plan, the employee is required to provide certain required documentation (see discussion below) to the employer. All other plans are considered non-accountable plans.

19 u spring 2008 issue