Accountable Plan
What Is an Accountable Plan?
An accountable plan is a plan that follows the Internal Revenue Service (IRS) regulations for repaying workers for business expenses in which reimbursement isn't considered income. This means that reimbursements are not subject to withholding taxes or W-2 reporting. However, these expenses must be business-connected with fall under an accountable plan.
How an Accountable Plan Works
An accountable plan contrasts from a non-accountable plan. On the off chance that a business' reimbursement plan doesn't follow IRS requirements for an accountable plan, the plan is non-accountable, and reimbursement for expenses is viewed as part of the employee's compensation and subsequently is subject to withholding and must be reported on an employee's W-2 form.
As per IRS rules, under an accountable plan, expenses are repaid in the event that they are business-related and are adequately accounted for. What's more, amounts paid in excess of genuine costs must be returned to the company within a predefined time period.
Business-related expenses incurred by employees can incorporate such things as movement, dinners, lodging, diversion, or transportation. Employees are required to adequately account for expenses with records and to return any excess reimbursement within a reasonable period of time.
Employers are not required to present the subtleties of their plan to the IRS, yet they must have the option to show that they meet the requirements of an accountable plan.
Employers are frequently able to use stricter accountable plan requirements than are posted by the IRS.
Requirements for an Accountable Plan
The requirements for an accountable plan are that they are business-related, that employee expenses are adequately accounted to their employer in a reasonable and convenient fashion, and that any excess reimbursement must be returned to the employer within a reasonable amount of time.
For expenses to be viewed as business-related, they must (freely) meet the following requirements: that the costs must be incurred within the course of employment, and that any expense that mixes between a personal expense and a business expense is suitably accounted for thusly, splitting the expense between the employer and the employee.
A common model is that of a personal vehicle that is utilized for business trips: in such a case, an employee might be expected to account for the miles that were incurred throughout their personal transportation and work-related transportation, splitting the costs properly.
Adequate accounting is ordinarily subject to third-party confirmation for the reasons for demonstrating that employees' funds were business-related. Receipts are a common form of third-party validation that employees will use to demonstrate the authenticity of their funding demands.
However, there are exemptions for this rule, including cases of non-lodging costs that amount to under $75, feast reimbursement that falls within IRS routine set of expenses standards, and transportation costs for which getting an official proof of payment is troublesome, like taxicabs, subways, and transports. As a rule, the expectation for the return of excess reimbursement funds is that such funds are returned to the employer within 120 days of their disbursal.
Features
- Accountable plans are not subject to taxation, as they are not viewed as a form of workers' compensation.
- Costs must be viewed as part of an accountable plan in the event that they are business-related, precisely reported, and assuming excess reimbursements are returned.
- On the off chance that a repaid cost is thought of as non-accountable, it is subject to taxation by the IRS. Excess funds must generally be returned within 120 days.
- An accountable plan is a course of repaying employees for their work-related costs.
