This Accountable Plan Policy ("Policy") is adopted by (the "Company") to establish guidelines for the reimbursement of ordinary and necessary business expenses incurred by employees and shareholders in the performance of their duties.
This Policy is established pursuant to Internal Revenue Code Section 62(a)(2)(A) and Treasury Regulation §1.62-2 to ensure that all reimbursements qualify for exclusion from employees' gross income.
2. EFFECTIVE DATE
This Policy is effective as of and supersedes all prior reimbursement policies.
3. IRS REQUIREMENTS FOR ACCOUNTABLE PLANS
Under Treasury Regulation §1.62-2, an accountable plan must satisfy three requirements:
Business Connection: Expenses must have a business connection and be ordinary and necessary for the conduct of Company business.
Substantiation: Employees must adequately account for expenses within a reasonable period (60 days of incurring the expense).
Return of Excess: Employees must return any excess reimbursement within a reasonable period (120 days of the expense or advance).
⚠️ Important Compliance Note:
Failure to meet ALL THREE requirements will result in the reimbursement being treated as taxable wages, subject to income tax withholding and employment taxes.
4. ELIGIBLE EXPENSES
The following categories of business expenses are eligible for reimbursement under this Policy:
Home Office Expenses: Rent/mortgage (business use portion), utilities, internet service, office supplies, furniture, and equipment for qualified home office space
Vehicle Expenses: Business mileage at the current IRS standard rate, parking, tolls, and actual vehicle expenses for business use
Travel Expenses: Airfare, lodging, ground transportation, meals (at IRS per diem or actual cost), and incidentals during business travel
Professional Development: Seminars, conferences, professional memberships, subscriptions, certifications, and continuing education
Communication: Cell phone (business use portion), business phone lines, software subscriptions, and cloud services
Client/Business Meals: Meals with clients, vendors, or employees when business is discussed (subject to documentation requirements)
Equipment & Supplies: Computers, printers, office supplies, tools, and other equipment necessary for job performance
5. SUBSTANTIATION REQUIREMENTS
All expense reimbursement requests must include the following documentation:
Amount: The exact dollar amount of each expense
Date: The date the expense was incurred
Place: The location or vendor where the expense occurred
Business Purpose: A clear description of the business reason for the expense
Receipts: Original receipts for all expenses (credit card statements alone are insufficient)
For Travel and Entertainment: Additional documentation must include names of individuals present and their business relationship.
For Vehicle Expenses: A contemporaneous mileage log showing date, destination, business purpose, and miles driven.
For Home Office: A home office worksheet calculating the business use percentage based on square footage or rooms.
6. TIMING REQUIREMENTS
To qualify under this Accountable Plan, the following deadlines must be met:
Expense Reporting: Expenses must be substantiated within 60 days of the date incurred or date of return from travel
Advance Accounting: If an advance is provided, the employee must substantiate expenses within 60 days of the date the advance was made
Return of Excess: Any excess advance or reimbursement must be returned within 120 days of the expense or advance
📋 Safe Harbor:
Under the IRS "periodic statement" safe harbor, expense reports are due within 60 days and excess must be returned within 120 days. The Company may impose stricter deadlines if desired.
7. EXPENSE REPORT PROCEDURES
Employees seeking reimbursement must follow these procedures:
Step 1: Complete the Company's Expense Report Form, including all required information
Step 2: Attach original receipts and supporting documentation for each expense
Step 3: Submit the expense report to
Step 4: Expense reports will be reviewed and approved within business days
Step 5: Approved reimbursements will be paid within business days of approval
8. REIMBURSEMENT METHOD
Reimbursements will be made via the following method(s):
9. RECORD RETENTION
The Company will maintain records of all expense reimbursements, including supporting documentation, for a minimum of seven (7) years in accordance with IRS requirements. Employees should also retain copies of their expense reports and supporting documentation for their personal records.
10. TAX TREATMENT
Reimbursements made under this Accountable Plan that meet all three IRS requirements (business connection, substantiation, and return of excess) are:
Excluded from employee's gross income (not reported on W-2)
Not subject to income tax withholding
Not subject to FICA taxes (Social Security and Medicare)
Not subject to FUTA taxes (Federal Unemployment)
Deductible as business expenses by the Company
Reimbursements that fail to meet IRS requirements will be treated as taxable wages and reported as compensation on the employee's Form W-2.
11. POLICY VIOLATIONS
Employees who fail to comply with this policy may:
Have reimbursement requests denied
Have amounts treated as taxable compensation
Be subject to disciplinary action up to and including termination
Fraudulent expense claims will result in immediate termination and possible legal action.
12. POLICY MODIFICATIONS
This policy may be modified at any time by the Company. The Company will provide written notice of any policy changes to all employees. Continued participation in the plan after receiving notice of changes constitutes acceptance of the modified policy.
📚 IRS Citations:
Treasury Regulation §1.62-2 (Reimbursements and other expense allowance arrangements)
IRC §62(a)(2)(A) (Reimbursed employee expenses)
IRC §162 (Trade or business expenses)
IRS Publication 463 (Travel, Gift, and Car Expenses)
IRS Publication 15 (Circular E, Employer's Tax Guide)
ADOPTED BY:
The Board of Directors/Owner of hereby adopts this Accountable Plan Policy.
Signature
Print Name & Title
Date of Adoption
CONFIDENTIAL: Retain with corporate records for IRS compliance (minimum 7 years).