Accountable plan

A plan can cover any employee, including an S corp owner on the payroll. It must meet all three requirements. First, it pays only for deductible business expenses the employee incurs while working for the employer. Second, the employee accounts for (substantiates) each expense to the employer within a reasonable period. Third, the employee returns any amount beyond those expenses within a reasonable period. A reimbursement paid with wages must be shown separately.

Travel and vehicle costs need the detail Section 274(d) requires. For travel away from home, that is the amount, time, place and business purpose of each expense. A broad label such as “travel” or “miscellaneous business expenses” is not enough.

The regulation gives a safe harbor for what counts as a reasonable period. An advance paid within 30 days of the expense qualifies. So does substantiation within 60 days after it, and returning any excess within 120 days. Outside those windows, the facts decide.

Reimbursements under an accountable plan stay off the employee’s W-2. They are also free of income tax withholding, Social Security, Medicare and FUTA tax. If the plan fails any requirement, everything paid under it becomes taxable wages. If only an excess is kept too long, just that excess is wages. An employee under a failed plan generally cannot deduct the expenses. Miscellaneous itemized deductions are disallowed, with no end date in the law.