IRS Publication 463

Excerpts

Please note that LLUAHSC or related entity policy can define more conservative policies; however, the policies must also comply with the minimum expectations of the IRS.

Publication 463 (pdf version)
Publication 463 (html version)

Accountable Plans

To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules.

1. Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
2. You must adequately account to your employer for these expenses within a reasonable period of time.
   1. Adequately Account 
      1. Documentary evidence.   You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. (Credit card monthly summary statement is not deemed adequate detail alone.
      2. Adequate evidence.   Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense. 
   2. Reasonable Period of Time
      The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.  * Note: Facts and circumstances may warrant greater than 60 days; however, they must be adequately documented with the approval of LLUAHSC or affiliate administration.
      1. You receive an advance within 30 days of the time you have an expense.
      2. You adequately account for your expenses within 60 days after they were paid or incurred.
      3. You return any excess reimbursement within 120 days after the expense was paid or incurred.
      4. You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
3. You must return any excess reimbursement or allowance within a reasonable period of time. Failure to return excess reimbursements will result in payments as under a nonaccountable plan.

   Failure to return excess reimbursements.  If you are reimbursed under an accountable plan, but you fail to return, within a reasonable time, any amounts in excess of the substantiated amounts, the amounts paid in excess of the substantiated expenses are treated as paid under a nonaccountable plan.

   Reimbursement of nondeductible expenses.  You may be reimbursed under your employer's accountable plan for expenses related to that employer's business, some of which are deductible as employee business expenses and some of which are not deductible. The reimbursements you receive for the nondeductible expenses do not meet rule (1) for accountable plans, and they are treated as paid under a nonaccountable plan.

   The employer makes the decision whether to reimburse employees under an accountable plan or a nonaccountable plan. If you are an employee who receives payments under a nonaccountable plan, you cannot convert these amounts to payments under an accountable plan by voluntarily accounting to your employer for the expenses and voluntarily returning excess reimbursements to the employer.

Reimbursements made that did not qualify under the accountable plan rules will be included on your IRS Form W-2.

Returning Excess Reimbursements

Under an accountable plan, you are required to return any excess reimbursement or other expense allowances for your business expenses to the person paying the reimbursement or allowance. Excess reimbursement means any amount for which you did not adequately account within a reasonable period of time. For example, if you received a travel advance and you did not spend all the money on business-related expenses or you do not have proof of all your expenses, you have an excess reimbursement.

Nonaccountable Plans

A nonaccountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans. In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a nonaccountable plan:

• Excess reimbursements you fail to return to your employer, and
• Reimbursement of nondeductible expenses related to your employer's business. See Reimbursement of nondeductible expenses , earlier, under Accountable Plans.
  An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a nonaccountable plan. This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses.

If you are not sure if the reimbursement or expense allowance arrangement is an accountable or nonaccountable plan, ask your employer.

Reporting your expenses under a nonaccountable plan.   Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay. Your employer will report the total in box 1 of your Form W-2.

You must complete Form 2106 or 2106-EZ and itemize your deductions to deduct your expenses for travel, transportation, meals, or entertainment. Your meal and entertainment expenses will be subject to the 50% limit discussed in chapter 2. Also, your total expenses will be subject to the 2%-of-adjusted- gross-income limit that applies to most miscellaneous itemized deductions.