We are encountering pushback on expense reports being done within the 60 day rule.

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Q. (con't).

Can you provide details as to the accountable and non-accountable plans? From what I know, expenses must be submitted within 60 days to meet the criteria for an accountable plans and are non-taxable; non-accountable expenses are taxable and added to employee's income. Can you tell me where I can find the appropriate IRS regulation?

 

A.

The IRS publication you're looking for is Publication 535, Business Expenses (https://www.irs.gov/pub/irs-pdf/p535.pdf).

On page 41, you'll find the beginning of the section that defines the requirements of an accountable plan.

The employee must, of course, have incurred the expenses as part of his or her employment; accounted for them to you, the employer, within a reasonable period of time; and returned any excess reimbursement to you, also within a reasonable period of time.

As you read further, you'll see that the IRS defines a "reasonable period of time" for submitting the expenses to you as being within 60 days after the expenses were incurred, and any excess advance or reimbursement must be returned to you within 120 days after the expenses were incurred.

Failure to submit the expenses to you with appropriate backup documentation within that reasonable period of time disqualifies them as falling under an accountable plan, and these expenses then become taxable as wages to the employees, as you note.

Since this is an IRS regulation and very clearly explained in this publication, I'd suggest you direct the employees to read it and explain that while their expenses will still be reimbursed after the 60 day cutoff, in that situation, the law states that these amounts must be reported as wages on their W-2s and they will be responsible for paying the taxes on them.

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