An accountable plan follows Internal Revenue Service (IRS) regulations for paying for employee business expenses in which the payment is not included in the employee's income, thus not subject to tax withholding.
Employee expense reimbursements and advances remain nontaxable under an accountable plan if all the following criteria are met:
Expenses are reasonable and necessary,
Expenses are related to the business purpose of the organization.
Expenses are appropriately accounted for and substantiated within 60 days of incurring the expense, and
Excess reimbursement, advances, or unsubstantiated expenses are repaid within 120 days of payment.
Expenses paid directly by the organization on behalf of an employee for business expenses must also meet these requirements.
Any amounts paid by the organization, either directly or reimbursed to the employee, and not substantiated within 60 days of the expense will be reported as taxable income to the employee in the next available payroll cycle.
Travel and entertainment expenses reimbursed under the accountable plan must comply with the Travel and Entertainment Expense policy. All expenses must comply with the Purchasing policy.
The steps for reimbursement follow the purchasing policy.