Are Expense Reimbursements Taxable?

Typically, when your company sends you on the road, there are certain amenities they will help you pay for. But are these expense reimbursements taxable? As with many HR questions, the answer is yes and no.

In most cases, expense reimbursements are not taxable. However, there are exceptions. The best way to comply with the IRS’ rules is to have a professional accountant create an expense reimbursement procedures guide. A proper protocol should be established for employers and employees for documenting, submitting, and reimbursing business-related expenses.

To create a detailed plan, organizations need to understand the types of expenses and how the IRS classifies them.

Common Business Expenses

To comply with IRS rules and regulations, the below expenses must have a direct connection to business functions. Also, each purchase must have the exact amount, time, and place.

Meals 

Meals are often a significant business expense for many companies. They count as an expense if they are directly connected to business activities. Here are a couple of likely scenarios:

1. An employee takes a client out to lunch to discuss new products and services.
2. An employee is traveling for work and pays for meals while on the road.

Employees who purchase meals that are connected to company functions should expect to be reimbursed for the total cost of the meal. It’s essential for employees to keep all receipts for company records and reimbursement procedures.

Supplies and Equipment

Employees may need to purchase supplies and equipment to get the job done– are these reimbursements taxable? Typically, this occurs when an employee is away from the office and requires additional resources to complete their work. For example:

1. An employee is out of town for a business meeting and needs more binders for his presentation.
2. An employee is on a job site and needs to purchase new safety glasses and work gloves to continue working.

Travel

Employees who travel often, such as sales professionals and service technicians, incur several travel-related expenses. But are these reimbursements taxable? Companies typically set a standard allowance for travel expenses to help regulate purchases. A common daily allowance is around $250 daily allowance to cover food, hotel, and car rental.  

Most fees associated with work travel are reimbursable expenses, because according to the IRS they are, “helpful and appropriate for the business.” For more information about work-related travel expenses, check out the IRS Publication 463.

Is travel reimbursement considered income?

Travel expenses are not considered income as long as they are appropriately documented as expenses. This is where a written expense protocol is essential. If travel expenses are incorrectly logged, they may face tax implications.

Moving

Employees who relocate to new cities for work are often reimbursed for moving expenses. Moving accumulates several fees, including packing materials, transportation, and lodging to name a few. However, it’s important to note that employees are not reimbursed for moving the same way as other business-related expenses. So are these expense reimbursements taxable?

Are moving expense reimbursements taxable income?

Unlike travel and other ordinary business expenses, moving reimbursements do count as taxable income. They are taxable because employer reimbursements are paid through payroll. This law came into effect in 2018 when moving expenses were no longer eligible as a tax-free perk.