These three common options will meet just about everyone’s needs: cash-receipt-based accountable plan, per diem-based accountable plan, and non-accountable plans.

 

Cash-receipt-based accountable plan:  In order for the reimbursement to be non-taxable to the employee and not reported on the W-2, it must meet three IRS conditions: a. there must be a business purpose;  b. the amount, time, use, and purpose must be requested within a reasonable time; and c. The employee must turn in the request in a reasonable amount of time

 

Per diem-based accountable plan:  Most per diem rates are just for lodging, for meals, and for incidental expenses.   Incidentals include: fees for tips and services, transportation between airport and lodging, shipping materials back to the office, parking fees, etc.   Per diem reimbursements are not taxable even if they exceed actual expenses (except those that exceed the federal per diem rate), and employees need account for place, time, and purpose of travel.  If you use the per diem reimbursement plan, you must use it for entire fiscal year.

 

Non-accountable plans:  Employees usually don’t like this plan; all expenses appear as wages on the employee’s W-2.   When filing his or her taxes, it is the employee’s responsibility to claim the deductions.