It depends whether or not this is an accountable or non-accountable plan.
With a
non-accountable reimbursement plan, your reimbursement should be included in
your taxable income. In that case, you are allowed to deduct all your employee
expenses "as if" you received no reimbursement.
An accountable plan
is a plan where an employee typically would submit a monthly expense report for
reimbursement. A plan under which an employee is reimbursed for expenses or
receives an allowance to cover expenses is an accountable plan only if
the following conditions are satisfied:
- there must be a business
condition for the expenses;
- the expense must be in
connection with performance of services as an employee
- the reimbursement must be
for an expense the employee could deduct on his/her tax return
the employee must either
substantiate or be deemed to have substantiated the expenses;
- Generally substantiation
consists of receipts and/or cancelled checks and invoices that show the
nature and amount of the expenditure
- Expenses deemed to have been
substantiated are such things as using the mileage allowance rate (50
cents per mile) rather than actual expenses for operating a vehicle or
use of a per diem rate for overnight travel rather than requiring
receipts for meals
the employee must return to
the employer amounts in excess of the substantiated (or deemed
substantiated) expenses within a reasonable time
The alternative to
an accountable plan is an allowance or nonaccountable plan. By definition, a
nonaccountable plan is one that does not meet the requirements of an
accountable plan. Routinely these plans involve the employer providing a set
amount, or an allowance, to the employee for travel. The employee does not
account to the employer for the expenditure of these funds. Amounts paid under
a non-accountable plan are income to the employee and must be included in wages
with appropriate tax withholdings. An employer can have an accountable plan for
some items, and a non-accountable plan for others.
