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Resource Center / Finance

Expenses 101: Preparing an Accountable Expense Reimbursement Plan

A step-by-step guide to setting up an expense reimbursement plan. Make submitting expenses easier for your employees.

Robert W. Ditmer
Nov 25, 20142 minutes
Set up expense reimbursement plans for your small company.

We've built a guide outlining everything you need to know about business expenses. If you'd like to download it for free, you can do so here.

Every deductible business expense reduces a business's taxable income. When an employee incurs an expense while providing services for the business, those expenses are deductible business expenses IF the employer reimburses his employee for the expenses.

Business Expenses: A Beginner's Guide To Building A Plan

Why do businesses need an accountable expense plan?

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However, some businesses don't benefit from those deductions because they fail to have what the IRS refers to as an Accountable Expense Reimbursement Plan.

Without an accountable plan, expense reimbursements to an employee become taxable income to the employee. This costs both the employer and the employee money. The employee has to pay income taxes on the reimbursements. The employer may still have a tax deduction in the form of wages paid, but the employer incurs the additional cost of paying Social Security, Medicare, and FUTA taxes on those wages.

Put simply, having an accountable plan will save both the employer and the employee money.

On the other hand, some employers have suffered during an IRS audit because they failed to have a written accountable plan, either as a separate document or as part of an employee manual, thus resulting in their employees failing to properly document business expenses. So what should a written plan include? The following is a brief outline of what an accountable expense reimbursement plan may contain.

  • Introduction

  • Brief introduction to define an accountable plan and why employees must conform to its provisions.

  • Review of Legal Requirements

    • Employee Record Keeping Requirements

      • Company Policies Regarding Travel ExpensesHow to Submit Business Expenses

        • Policies Regarding Employer Review and Timing of Reimbursements

        • Special Situations

          If you have any questions regarding accountable plans, or need help preparing a plan for your business, Justworks includes access to Justworks Concierge, an HR service that can hep you with these tricky expense questions.

          This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.