the tax laws favor an accountable plan maintained by a business where the taxpayer accounts for the mileage and is reimbursed.
Also known as an allowance plan, non-accountable plans differ from accountable plans in that the latter requires employees to provide adequate accounting to receive reimbursement. Since money received by employees under an accountable plan is for reimbursement of money spent on business-related expenses it is not taxable.
Internal Revenue Service. "Publication 463 Travel, Gift, and Car Expenses," Pages 30-33. Accessed Mar. 4, 2021.
While money given to employees under a non-accountable plan is meant to be spent on business expenses, such as travel, meals or entertainment, the recipient may spend it any way they choose. For example, if an employer were to give an employee $500 to cover the cost of meals while away on a business trip, under a non-accountable plan, the employee could eat inexpensive food for every meal and pocket the savings.
As far as the Internal Revenue Service (IRS) is concerned, however, it is compensation that is paid in addition to salary or wages. As such, it is taxed as income. Employers may use a non-accountable plan for some expense items and an accountable plan for other expenses.
Internal Revenue Service. "Publication 463 Travel, Gift, and Car Expenses," Page 33. Accessed Mar. 4, 2021.
