Accountable plan definition
/What is an Accountable Plan?
An accountable plan is a corporate plan that follows IRS guidelines for employee expense reimbursement, so that the payments are not counted as personal income. The plan is used to keep from including reimbursement payments in an employee’s Form W-2, or to withhold income taxes from it. The use of an accountable plan is intended to benefit employees, so that they do not have to pay taxes on any reimbursed expenses.
Related AccountingTools Course
Accountable Plan Classification Requirements
To be classified as an accountable plan, an employer’s expense reimbursement process must adhere to the following rules:
All expenses reimbursed must have a business connection.
The employee must adequately account to the employer for these expenditures within a reasonable period of time, such as by submitting an expense report, to which payment receipts are attached.
The employee must repay the employer for any excess reimbursements within a reasonable period of time (typically considered to be within 120 days of the original reimbursement). Any excess reimbursement is any amount paid to the employee that is more than the amount documented to the employer as being a business-related expense.
For example, an employer reimburses an employee for the cost of traveling to a client, as well as for meals when the employee is working late in the office. The first part of these reimbursements is covered by the accountable plan, since there is a business connection. That is not the case with the meals purchased while working late, so these latter reimbursements are classified as income to the employee.