Employer Accountable Plan

Tax Strategy
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Deduction
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Updated
2/18/2023

How It Works

Under an Accountable Plan, a business (corporation or partnership) reimburses employees for out-of-pocket expenses and takes a deduction for the reimbursements. The reimbursements aren’t included in the employee’s taxable income. The employee must substantiate the expenses with sufficient documentation and the expenses must have a business connection.

Eligibility

Confirm the following before using this strategy

  • You must be a shareholder-employee of an S or C corporation or general partner of a partnership.
  • You must incur out of pocket expenses in connection with the business.

Action Items

Follow these steps to use this strategy:

  • Establish an expense reporting process;
  • Require employees to submit periodic expense reports;
  • Reimburse the employee through payroll, direct deposit, or check.

Limits (2023)

There are no limits impacting this strategy, however reimbursements are deductible to the extent the employee is able to substantiate the expenses for which they are reimbursed.

IRC References

26 CFR § 1.62-2 - Reimbursements and other expense allowance arrangements

"Except as provided in paragraph (c)(2)(ii) of this section, if an arrangement meets the requirements of paragraphs (d), (e), and (f) of this section, all amounts paid under the arrangement are treated as paid under an “accountable plan.”

This content is for informational purposes only and does not constitute legal, business, or tax advice. You should consult your own attorney, business advisor, or tax advisor regarding matters mentioned in this post. We take no responsibility for actions taken based on the information provided.

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