Yesterday’s Advisor presented basics of expense reimbursement (courtesy of Compensation.BLR.com); today, details of processing and taxation.
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Reimbursement Processing and Paperwork
Whatever method you use, standardized forms should be developed to ease the processing for all involved. Those employees with established budgets still need to be accountable for the expenditures, and employers should have such employees fill out expense forms monthly or quarterly.
For less frequent travelers, an employer should use only a few forms. One form might be used for obtaining advance payments as well as travel authorization. This form should show the amount of the advance payments made, as well as approval signatures from appropriate managers.
The second form should be used after the trip is taken to document actual costs. If receipts are required, they should be attached to this form.
For entertainment reimbursement, a form might include the date and time of the event and those who were present. Receipts need to be attached.
Generally, all forms should be reviewed and signed by the employee’s supervisor and then passed on for processing.
Reimbursement Receipts
Most employers require receipts. However, requesting employees to provide receipts for items such as newspapers, short cab fares, or other miscellaneous small expenses can be cumbersome, time-consuming, and frustrating for employees. It also has the potential of causing a negative psychological effect on employees who are honest.
To make things easier all around, an employer may want to require receipts only for expenses above certain guidelines or over a certain amount–such as $10 or $25 for any one expense. An employee that has a receipt for items over $75 must substantiate expenses for exclusion from withholding taxes.
Reimbursements are trickier than you think; find out all about them on October 8, 2014, with a new interactive webinar, Employee Expense Reimbursement and Per Diem Rules: How to Keep Policies and Practices Compliant. Learn More.
Reimbursement Taxation
Advances and reimbursements paid to employees for ordinary and necessary business and travel expenses may be excluded from the employee’s income and are not subject to income tax, Federal Income Contribution Act (FICA), and Federal Unemployment Tax Act (FUTA) withholding if they are paid under an “accountable plan.”
The IRS defines an “accountable plan” as an arrangement under which the expenses are incurred while performing services as an employee, the employee can adequately account for or “substantiate” the expenses within a reasonable period of time, and the employee returns excess amounts within a reasonable period of time.
The IRS has indicated that the hotel and meal costs for extended weekend stays to obtain lower air fares are exempt from withholding.
Employees substantiate their reimbursed expenses by providing expense records that show the time, place, amount, and business purpose of an expense. Receipts, other than lodging, are required only for expenses that exceed $75. The IRS will not accept credit card receipts as documentary evidence, but requires actual itemized bills. Per diem payments for meals and lodging that do not exceed the federal per diem rate for a particular city are deemed to be substantiated without accounting for actual expenses.
Current per diem rates may be found on the Per Diem Rates page at the U.S. General Services Administration (GSA) website, http://www.gsa.gov.Other information regarding per diem rates, such as substantiation methods and transition rules, may be found in IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.
There is also a simplified method of determining the federal rate for travel in the continental United States. Cities are classified as either high- or low-rate cities. The high and low rates are set for each year, and a list of the high-rate cities can be found in the Internal Revenue Bulletin: 2013-44, Notice 2013–65, Special Per Diem Rates, available at http://www.irs.gov.
If payments in excess of the amount that is deemed to be substantiated are made, the employee must provide actual substantiation for the entire amount or return the excess to prevent the entire amount from being treated as wages.
http://www.irs.gov/formspubs: Employers may obtain other IRS publications on this website or by calling 800-829-3676. For more information on tax issues, call the IRS at 800-829-1040.
Expense reimbursement, a little trickier than it seems. Not sure you’re doing it right? Fortunately, there’s timely help in the form of BLR’s new webinar—Employee Expense Reimbursement and Per Diem Rules: How to Keep Policies and Practices Compliant. In just 90 minutes, on October 8, you’ll learn everything you need to know about expense reimbursements.
Register today for this interactive webinar.
You could face a multitude of problems if your expense and reimbursement policies and practices are not legally compliant. Don’t wait for employees or a government watchdog to sound the alarm. Join us on October 8 when our presenters, both seasoned employment attorneys, will guide you in handling your expense reimbursements while avoiding legal missteps that could result in major headaches for your organization.
Avoid the hassle. Register today for this interactive webinar.
Reimbursements a headache? Join us October 8 for a new interactive webinar, Employee Expense Reimbursement and Per Diem Rules: How to Keep Policies and Practices Compliant. Earn 1.5 hours in HRCI Recertification Credit. Register Now.
By participating in this interactive webinar, you’ll learn:
- The legally acceptable ways you can reimburse employees for the business-related use of their personal vehicles
- Which travel-related expenses, such as meals and lodging, you must reimburse, and when you owe employees for incidental expenses related to business travel
- When you must reimburse employees for uniforms, and whether you have to reimburse them for laundering their work clothes
- Whether you can require employees to wear a certain type of clothing, but not an actual uniform, without reimbursing them for their purchases
- If you can legally increase an employee’s wages or commissions instead of reimbursing them for actual expenses
- When employees may not be eligible for reimbursement for tools or equipment
- When a per diem is really a wage
- How to draft your handbook and employment policies to comply with the Fair Labor Standards Act and IRS regulations
- And much more!
Register now for this event risk-free.
Wednesday, October 8, 2014
1:30 p.m. to 3:00 p.m. (Eastern)
12:30 p.m. to 2:00 p.m. (Central)
11:30 a.m. to 1:00 p.m. (Mountain)
10:30 a.m. to 12:00 p.m. (Pacific)
Approved for Recertification Credit
This program has been approved for 1.5 credit hours toward recertification through the Human Resource Certification Institute (HRCI).
Join us on October 8—you’ll get the in-depth Employee Expense Reimbursement and Per Diem Rules: How to Keep Policies and Practices Compliant webinar AND you’ll get all of your particular questions answered by our experts.
Train Your Entire Staff
As with all BLR/HR Hero® webinars:
- Train all the staff you can fit around a conference phone.
- Get your (and their) specific phoned-in or e-mailed questions answered in Q&A sessions that follow each segment of the presentation.
It might be helpful to share this info with employees who travel and sometimes get frustrated with expense documentation requirements.