An accountable plan is an employee reimbursement allowance arrangement or a method for reimbursing employees for business travel expenses that complies with IRS regulations. The accountable plan also must include a plan by which employees return excess reimbursements (those in excess of allowable amounts) to the employer. If an employer sets up and maintains an accountable plan, employee travel expenses do not have to be treated as taxable income.
What are the allowable plan requirements?
In order to be considered an "accountable plan" by the IRS, your arrangement must include all of the following:
- The expenses must have a business connection; that is, they must have been paid or incurred while performing services as an employee
- The employee must adequately account to the employer for these expenses within a reasonable time.
- The employee must return an excess reimbursement or allowance within a reasonable period of time.
What are "excess reimbursements"?
Excess reimbursement is reimbursement in excess of the allowable amounts. A reasonable period of time for return of excess reimbursements is determined by the IRS as:
- An advance received within 30 days of the time of the expense
- The employee furnishes an adequate account of expenses within 60 days after they were paid or incurred.
- The employee returns any excess reimbursement within 120 days after it was paid or incurred.
- The employee is given a statement (at least quarterly) that request return or adequate accounting for outstanding advances, and the employee complies within 120 days after receiving the statement.