Category: Year End Compliance
An accountable plan is a reimbursement or other expense allowance arrangement that requires employees to substantiate covered expenses and return unsubstantiated advances. The following requirements are generally applied on an employee-by-employee basis, and must be met for the plan to be accountable:
If your plan meets the requirements for an accountable plan, expense reimbursements to employees are deductible by the employer as business expenses. These reimbursements are excluded from the employee's gross income, not reported as wages or other compensation on the employee's Form W-2, and exempt from employment taxes.
If the plan is non-accountable (i.e. does not meet all requirements for an accountable plan), the employer deducts employee expense advances or reimbursements as compensation rather than business expenses. The payments are included in the employee's gross income, reported as wages on Form W-2, and subject to Federal income tax withholding and employment taxes when paid.
A very common type of non-accountable plan is giving an employee a flat dollar amount as an “Auto Allowance” for business use of their personal auto. If they are not required to substantiate the business miles and repay any excess back to the employer, this amount is taxable compensation.