As an employer, you can choose either to reimburse your employees for actual travel and entertainment expenses or pay the employee an expense allowance. The taxable treatment for both the employer and the employee depends on what type of plan your organization has in place. Generally, any expenses reimbursed to the employee are deductible by the employer. The difference is in how the reimbursement affects the employee. This article discusses the options and how to determine what is best for your organization.

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©Copyright2015.CBIZ,Inc.NYSEListed:CBZ.Allrightsreserved.
BY CORD D. ARMSTRONG
A
s an employer, you can choose either to
reimburse your employees for actual travel and
entertainment expenses or pay the employee an
expense allowance. The taxable treatment for both the
employer and the employee depends on what type of
plan your organization has in place.
Generally, any expenses reimbursed to the employee
are deductible by the employer. The difference is in how
the reimbursement affects the employee.
Accountable Plan Rules
If the employer has a written “accountable” plan,
then the reimbursement is non-taxable to the employee
and none of the reimbursement is included in the
employee’s income. The employee also does not
deduct any of their expenses on their own personal
return.
A plan is accountable if it meets certain
requirements for business connection and
substantiation and requires that any allowances in
excess of the actual expenses be returned. Any unused
allowances not paid back to the employer within a
reasonable period of time are considered paid under the
non-accountable plan rules and treated as additional
employee wages.
Non-Accountable Plan Rules
The other option is to treat all employee travel
reimbursements as employee wages under a non-
accountable plan. The most common example of a
non-accountable plan is a simple allowance
arrangement where the employer pays the employee a
flat amount periodically for expenses and the employee
is not required to provide any accounting of these
expenses to the employer.
At first glance, the adoption of a simple allowance
arrangement might seem appealing to an employer but
will likely lead to increased payroll costs.
Tax Strategies
Navigating Your Employee Travel Costs
Article reprinted from Fall 2015GROWTHBIZS T R A T E G I E S
With a non-accountable plan, the employee can
try to offset the additional income in their W-2 by
deducting their expenses incurred on their individual
return. However, these deductions will rarely offset
100 percent of the income since they are treated as
itemized deductions and must exceed two percent
of the employee’s adjusted gross income to be
deductible. In addition, the deductions for “Meals &
Entertainment” expenses are subject to the 50 percent
limitation.
Per Diem Method
In lieu of accounting for and deducting the
actual amount of out-of-town travel costs incurred
by employees, employers can elect to pay a fixed
daily reimbursement, known as a per diem. If the per
diem paid does not exceed IRS approved maximums,
the reimbursement is treated as made under an
accountable plan, and the employee does not need to
substantiate the actual amounts paid. Although, the
time, place and purpose must still be substantiated
through adequate documentation.
If the allowance exceeds the per diem rate, the
excess is treated as paid under a non-accountable plan
and is therefore taxable to the employee, subject to
payroll withholding and included in the employee’s W-2.
As an employer, you should educate employees
about their particular travel expenses reimbursement
policies. For example, if they have an accountable
plan in place, your employees should understand the
benefits of not including the reimbursement in their
W-2. Likewise, if any of the employee’s reimbursement
is treated as taxable wages, they should also be
educated on what they can deduct on their personal
returns.
If you are unsure as to which method is best for your
organization, contact a tax professional well versed in
this area.
Our business is growing yours
CORD D. ARMSTRONG
CBIZ MHM, LLC • Phoenix, AZ
602.264.6835 • carmstrong@cbiz.com
@CBIZMHMPhoenix