Expense reimbursement policy: accountable plan rules for claims

For US employees and approvers: check an expense claim against IRS accountable plan rules on business purpose, receipts, 60 and 120 day deadlines.

Expense reimbursement policy: accountable plan rules for claimsEmployeeFinanceManagerCHECK THE EXPENSESUBMIT AND APPROVESETTLE ADVANCESYesNoYesNoPer diemActual costNoYesNoYesLateNoYesNoYesNoYesNoYesYesNoYesYesNoEmployee has a businessexpense to claimFor US employees and approvers.Checks an expense claim against IRSaccountable plan rules so thereimbursement stays tax-free.Based on IRS Publication 463 (2025)and 26 CFR 1.62-2. Your employer'spolicy can be stricter, for example a30-day deadline instead of 60.Was it for the employer'sbusiness?An accountable plan only coversexpenses you paid or incurred whileworking as an employee, that wouldbe deductible business expenses.Business purpose confirmedNot reimbursable under theaccountable planCommuting between home and yourregular workplace is personal,however far it is. If the employerpays a personal or nondeductiblecost anyway, it counts as paid undera nonaccountable plan and is taxedas wages.Is it on your policy's list ofnon-reimbursable items?Common examples: traffic andparking fines, personal travel daysadded to a trip, upgrades nobodyapproved, and personalentertainment. Check your own list.Pay it yourself and leave itoff the claimGather your supportIs it paid as a perdiem or at actualcost?Record dates, place andbusiness purposeA per diem or car allowance at orbelow the federal rate counts asproof of the amount, if you prove thetime, place and business purpose.GSA publishes the federal per diemrates for each fiscal year, October 1to September 30. An allowanceabove the federal rate is reported aswages for the excess.Collect a receipt for eachexpenseA receipt should show the amount,date, place and what the expensewas for. A hotel bill should listlodging, meals and other chargesseparately.Receipts aren't needed for anon-lodging expense under $75, or atransport cost with no receipt readilyavailable. Lodging always needs one.Are any requiredreceipts missing?Receipts completeAsk the vendor for a copyCard statements show the amountand date but usually not what wasbought. Your policy may accept asigned missing-receipt form for smallitems.Did you get a copy?Ask finance how to treat itA claim without the support the IRSrequires can't be paid tax-free.Finance may pay it as taxable wagesor decline it.Submit the claim within 60daysIRS safe harbor: accounting for anexpense within 60 days after youpaid or incurred it counts as areasonable period.List each expense with date, amount,place and business purpose. Mileageuses the IRS standard mileage ratefor the year.Was it submittedwithin your policy'sdeadline?Send it to your manager forreviewFinance reviews the lateclaimOutside the safe harbor, the IRS looksat the facts and circumstances.Many policies pay late claims astaxable wages.Does finance acceptit as timely?Pay the claim throughpayroll as taxable wagesAmounts not substantiated within areasonable period are treated aspaid under a nonaccountable plan.They go on Form W-2 as wages andare subject to withholding.Does the manager approveit?The manager checks the businesspurpose, that amounts follow policy,and that nothing is claimed twice.Send it to finance for auditReturn it to the employee tofixDoes it pass finance review?Finance checks receipts againsteach line, policy limits, per diem andmileage rates, and duplicate claims.Approve the claim forpaymentWas a cash advance paid forthese expenses?Safe harbor: an advance paid within30 days of when you have theexpense counts as reasonable.Reimburse the approvedamount tax-freeAccountable plan reimbursementsstay out of Form W-2 box 1.Compare the advance withthe approved totalIs the advance morethan the approvedexpenses?Pay the employee thedifferenceAsk the employee to returnthe excessSafe harbor: return it within 120 daysafter the expense. If finance sendsperiodic statements at leastquarterly, return or account within120 days of the statement.Was the excessreturned in time?Claim settled with theexcess repaidReport the unreturnedamount as wagesExcess not returned within areasonable period is treated as paidunder a nonaccountable plan andgoes on Form W-2 as wages.

Check the expense

  1. Employee has a business expense to claimEmployee

    For US employees and approvers. Checks an expense claim against IRS accountable plan rules so the reimbursement stays tax-free.

    Based on IRS Publication 463 (2025) and 26 CFR 1.62-2. Your employer's policy can be stricter, for example a 30-day deadline instead of 60.

  2. Was it for the employer's business?Employee

    An accountable plan only covers expenses you paid or incurred while working as an employee, that would be deductible business expenses.

  3. Business purpose confirmedEmployee

    Then go to step 5, Is it on your policy's list of non-reimbursable items?

  4. Not reimbursable under the accountable planEmployee

    Commuting between home and your regular workplace is personal, however far it is. If the employer pays a personal or nondeductible cost anyway, it counts as paid under a nonaccountable plan and is taxed as wages.

  5. Is it on your policy's list of non-reimbursable items?Employee

    Common examples: traffic and parking fines, personal travel days added to a trip, upgrades nobody approved, and personal entertainment. Check your own list.

  6. Pay it yourself and leave it off the claimEmployee
  7. Gather your supportEmployee
  8. Is it paid as a per diem or at actual cost?Employee
  9. Record dates, place and business purposeEmployee

    A per diem or car allowance at or below the federal rate counts as proof of the amount, if you prove the time, place and business purpose.

    GSA publishes the federal per diem rates for each fiscal year, October 1 to September 30. An allowance above the federal rate is reported as wages for the excess.

    Then go to step 16, Submit the claim within 60 days

  10. Collect a receipt for each expenseEmployee

    A receipt should show the amount, date, place and what the expense was for. A hotel bill should list lodging, meals and other charges separately.

    Receipts aren't needed for a non-lodging expense under $75, or a transport cost with no receipt readily available. Lodging always needs one.

  11. Are any required receipts missing?Employee
  12. Receipts completeEmployee

    Then go to step 16, Submit the claim within 60 days

  13. Ask the vendor for a copyEmployee

    Card statements show the amount and date but usually not what was bought. Your policy may accept a signed missing-receipt form for small items.

  14. Did you get a copy?Employee
  15. Ask finance how to treat itFinance

    A claim without the support the IRS requires can't be paid tax-free. Finance may pay it as taxable wages or decline it.

    Then go to step 21, Pay the claim through payroll as taxable wages

Submit and approve

  1. Submit the claim within 60 daysEmployee

    IRS safe harbor: accounting for an expense within 60 days after you paid or incurred it counts as a reasonable period.

    List each expense with date, amount, place and business purpose. Mileage uses the IRS standard mileage rate for the year.

  2. Was it submitted within your policy's deadline?Employee
  3. Send it to your manager for reviewManager

    Then go to step 22, Does the manager approve it?

  4. Finance reviews the late claimFinance

    Outside the safe harbor, the IRS looks at the facts and circumstances. Many policies pay late claims as taxable wages.

  5. Does finance accept it as timely?Finance
  6. Pay the claim through payroll as taxable wagesFinance

    Amounts not substantiated within a reasonable period are treated as paid under a nonaccountable plan. They go on Form W-2 as wages and are subject to withholding.

  7. Does the manager approve it?Manager

    The manager checks the business purpose, that amounts follow policy, and that nothing is claimed twice.

  8. Send it to finance for auditFinance

    Then go to step 25, Does it pass finance review?

  9. Return it to the employee to fixEmployee

    Then go to step 16, Submit the claim within 60 days

  10. Does it pass finance review?Finance

    Finance checks receipts against each line, policy limits, per diem and mileage rates, and duplicate claims.

  11. Approve the claim for paymentFinance

Settle advances

  1. Was a cash advance paid for these expenses?Finance

    Safe harbor: an advance paid within 30 days of when you have the expense counts as reasonable.

  2. Reimburse the approved amount tax-freeFinance

    Accountable plan reimbursements stay out of Form W-2 box 1.

  3. Compare the advance with the approved totalFinance
  4. Is the advance more than the approved expenses?Finance
  5. Pay the employee the differenceFinance
  6. Ask the employee to return the excessEmployee

    Safe harbor: return it within 120 days after the expense. If finance sends periodic statements at least quarterly, return or account within 120 days of the statement.

  7. Was the excess returned in time?Employee
  8. Claim settled with the excess repaidEmployee
  9. Report the unreturned amount as wagesFinance

    Excess not returned within a reasonable period is treated as paid under a nonaccountable plan and goes on Form W-2 as wages.

Outcomes

Not reimbursable under the accountable plan

Commuting between home and your regular workplace is personal, however far it is. If the employer pays a personal or nondeductible cost anyway, it counts as paid under a nonaccountable plan and is taxed as wages.

You get here from step 2, Was it for the employer's business? (No).

Pay it yourself and leave it off the claim

You get here from step 5, Is it on your policy's list of non-reimbursable items? (Yes).

Pay the claim through payroll as taxable wages

Amounts not substantiated within a reasonable period are treated as paid under a nonaccountable plan. They go on Form W-2 as wages and are subject to withholding.

You get here from step 20, Does finance accept it as timely? (No), step 15, Ask finance how to treat it.

Reimburse the approved amount tax-free

Accountable plan reimbursements stay out of Form W-2 box 1.

You get here from step 27, Was a cash advance paid for these expenses? (No).

Pay the employee the difference

You get here from step 30, Is the advance more than the approved expenses? (No).

Claim settled with the excess repaid

You get here from step 33, Was the excess returned in time? (Yes).

Report the unreturned amount as wages

Excess not returned within a reasonable period is treated as paid under a nonaccountable plan and goes on Form W-2 as wages.

You get here from step 33, Was the excess returned in time? (No).