Unreimbursed Employee Business Expenses And The Accountable Plan

Beginning in 2018, employees are no longer able to deduct out-of-pocket business expenses, including professional dues and licenses, tools and equipment, uniforms, continuing education, and work-related travel, meals and lodging. 

Instead of footing the bill for these business expenses, ask your employer to consider setting up an accountable reimbursement plan. If your employer sets up an accountable plan, you can submit proper documentation for required expenses and subsequently receive tax-free reimbursement. In addition, the employer gets a tax deduction for the payment.

If your employer does not want to set up an accountable plan, you could request an expense allowance to help cover your costs. The employer will need to include this allowance on your W-2; however, it would help reduce your out-of-pocket total.

According to IRS rules, under an accountable plan, expenses are reimbursed if they are business-related and can be substantiated. In addition, amounts paid in excess of actual costs must be returned to the company. Business-related expenses incurred by employees can include such things as travel, meals, lodging, entertainment, transportation, or many other costs. Employees are required to account adequately for expenses with records and to return any excess reimbursement within a reasonable period of time.

Are you an employer? Accountable plans can benefit employees. Since the Tax Cuts and Jobs Act eliminated many deductions for employees, you can establish an accountable plan where the employees are required to submit documentation establishing the time, place and business purpose for the expenses to you. Your reimbursement to the employee is deductible on your business return and not taxable income to the employee.

If you choose not to reimburse your employees, but instead give your employees an expense allowance that can be used without substantiation, you must include the amount on their W-2. You still get a deduction for the amount paid as a wage expense, but your employee is required to pay tax on the money. Having an accountable plan in place will save you the payroll taxes on the amounts required to be included on the employee’s W-2.