If there is not a cash advance involved, it is a matter of company policy. We are unaware of a set time or any legislation directly addressing the question. However, if a cash advance is involved, there are tax reporting consequences for not accounting for and returning any excess within a reasonable amount of time. As far as developing a policy, you may want to refer to the IRS's concept of a "reasonable period of time" as a guide and therefore require submission within 60 days of the expense.
The difficulty comes in enforcing this, and a strong, clearly-communicated company policy supported by executive management is the key. For cash advances, the IRS defines and distinguishes between accountable and non-accountable plans. Reimbursements under an accountable plan are not reported as income provided they meet the rules for accountable plans, which are:
- the expenses must have a business connection –that is, the employee must have paid or incurred deductible expenses while performing services as an employee of your company
- they must adequately account to you for these expenses within a reasonable period of time
- they must return any excess reimbursement or allowance within a reasonable period of time.
The IRS defines a reasonable period of time as follows: advance is made to an employee 30 days prior to the expense, an accounting of expenses is made within 60 days after the expense, and return of excess reimbursement is made within 120 days after the expense was paid or incurred.
According to IRS publications and confirmed by IRS agent Hilliard (#1006010), in a cash advance situation, if an employee does not account for expenses or return excess reimbursements within a reasonable period of time as defined above (60 and 120 for accounting and returning excess respectively), then the advance is considered a taxable benefit that should be reported as income on the employee's W-2. (See a discussion of accountable and non-accountable plans in IRS publication 535, and see table 13-1 on page 51 for a handy guide showing what and when to report on an employee's W-2 form under accountable and non-accountable plans.)