Founder Q&A : Accountable Plan

On a recent call with a startup founder they asked if they could run their car insurance through the business. We asked them if they had an “accountable plan”

An accountable plan refers to a reimbursement system that requires employees to provide documentation for their expenses and return any unsupported amounts. With an accountable plan, most payments made to employees for business-related expenses are not considered taxable income, and the business is not liable for payroll taxes.

To qualify as an accountable plan, it must satisfy the following criteria:

  1. Business connection: The expenses should be directly related to the employee’s job responsibilities.
  2. Substantiation: The employee must provide evidence, such as receipts or other records, to substantiate the expenses.
  3. Return of excess reimbursement: If the employee receives more reimbursement than they are entitled to, they must return the excess amount within a reasonable timeframe.

Complying with these requirements ensures that reimbursements under an accountable plan remain non-taxable for employees. However, failing to meet these conditions may result in the reimbursements being considered taxable income, subject to payroll taxes.

Here is a template that can help get you started but please note this should always be approved by your tax preparer for current compliance rules and guidelines.

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Founder Q&A : Accountable Plan 3

Here are several examples of expenses that can be reimbursed through an accountable plan:

  • Utilities if you WFH
  • Home office rent
  • Personal / work car *necessary for work travel (not including travel to your office)
  • Travel

If you’re an employee receiving expense reimbursements, it’s crucial to understand the guidelines of an accountable plan to avoid potential tax liabilities.

Consider the following tips for utilizing an accountable plan effectively:

  1. Maintain accurate records: Keep track of receipts, invoices, and other supporting documents to substantiate your expenses.
  2. Prompt reimbursement: Reimburse yourself in a timely manner to prevent any excess reimbursement from accumulating.
  3. Return excess reimbursement: If you receive more reimbursement than the actual expenses incurred, promptly return the excess amount to your employer.

By adhering to these guidelines, you can utilize an accountable plan to efficiently reimburse your business expenses while minimizing tax implications.

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