Employee Expense Reimbursement Tips

The IRS wants to help you avoid compliance hassles when managing employee travel reimbursements.  Using the fed’s per diem rates greatly simplifies what’s otherwise a complex process.  Using per diems, however, doesn’t mean you can ditch the IRS’ accountable plan rules.  The current per diems are available at www.gsa.gov/portal/content/104877.
 
Reports plus receipts are needed for adequate reporting.  Employees seeking reimbursement for business expense – including travel – must always adequately account for those expenses.  While you have great latitude to set your own policy and record-keeping systems, the IRS’ accountable plan rules require employees to:
 
  1. Document how much they spend on the company’s behalf within 60 days. Documents include receipts, cancelled checks or bills.
  2. Document the time, place and business purpose of their expenses within 60 days.  Documents – detailed, itemized statements of expenses, account books, diaries or similar records of where and when they incurred expenses.
  3. Return unused advances within 120 days after paying or incurring an expense.
 
How per diems work.  Instead of reimbursing employees 100% for their hotel, meal and incidental expenses, per diems combine one flat amount for meals, lodging and incidentals.  (They don’t include actual travel costs, such as airfare or per-mile car expenses.)
 
Since you already know what employees can spend, they needn’t submit receipts for expenses the per diems cover.  However, they must still document the time, place and business purpose of their trips, and submit receipts for expenses the per diems don’t cover.
Tax Advantages:  If your per diems don’t top the fed’s rates, your reimbursements are tax-free; for per diems exceeding the fed’s, only the excess is taxable.
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