An important part of running a small to midsized business, being an accountant, or being a payroll specialist is to know what expenses employees are entitled to reimbursement for from employers. According to the IRS, expenses that the employer is entitled to reimburse the employee for cost are work-related supplies, travel done away from work (tax home), business use of a car, meals that have a clear business purpose and gifts to clients, up to $25. Substantiate these deductions by always having a written record and an accountable plan in place.
Expense reimbursement allows employers a way to properly pay back an employee after they spend their own money for work-related expenses. IRS Publication 463 defines deductible expenses for employees: “To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your industry. A necessary expense is one that is helpful and appropriate for your trade or business. An expense does not have to be indispensable to be considered necessary.”
Additionally, any expenses reimbursed in excess of deductions must be returned to the employer within a reasonable amount of time. If the employer decides to reimburse an employee for an expense, say above the standard mileage rate for driving, then the excess amount is considered taxable income.
Travel & Transportation
Meal costs – and entertainment costs if business related – incurred within the employee’s tax home or on behalf of the company are reimbursable. Employees who pay are entitled to 100% reimbursement of meal costs while employers can deduct only 50% of the cost of a meal.
Compliant process for reimbursing employees
- people present
- the business purpose of the meeting