CSI Accounting & Payroll Blog

How to Handle Employee Reimbursements

Written by Bret Asmussen | Nov 20, 2023 3:00:00 PM

When your employees incur a business expense, you may be required or expected to reimburse them. How do you know what your responsibility is as a small employer?

At CSI Accounting & Payroll, we’ve worked with small businesses for over 50 years. We know that navigating the rules of employee reimbursements is more complicated than it seems. Here’s what small business owners want to know:

  • What types of things should I reimburse employees for?
  • How much time do I have to reimburse an employee?
  • How do I reimburse an employee?
  • Are employee reimbursements taxable?

What to Reimburse Employees For

When it comes to expenses, there are plenty of different rules. If an employee spends their money or uses another personal resource on your company, they need to be reimbursed. Otherwise, some employers choose to reimburse employees for their personal expenses as different benefits.

The following are things that you can reimburse your employees for:

  • Equipment (ex. Office equipment, uniforms)
  • Home office expenses (ex. Internet speeds required for working from home)
  • Mileage (ex. Tracking mileage on a personal vehicle used for business purposes, not including a regular commute) Make sure you use the current IRS-accepted rate!
  • Per diem business travel (ex. Meals and lodging while on a business trip) Use the IRS chart that shows the expenses in the area you’re traveling to.
  • Moving expenses. If they have receipts, reimburse them. Otherwise, you can offer a taxable moving allowance.
  • Parking and transportation. (ex. Fare for taking the bus or train)
  • Educational assistance (ex. Tuition, student loans)
  • Healthcare reimbursement arrangements (ex. HRA, ICHRA, QSERA)

Not sure if something is reimbursable? A payroll specialist can help you!

Timeline for Reimbursing Employees

When an employee spends money on something you’re required to reimburse, how much time do you have?

If you have an accountable plan (the employee provides receipts), the IRS says you should reimburse them within 60 days of them incurring the expense. Any longer, and you could risk being out of legal compliance and having a very unhappy employee.

How to Reimburse Employees

Your employee incurred an expense, and you’re happy to reimburse it quickly - but how?

First, you need to know how much to reimburse. Employees should either provide receipts or document other things that have reimbursable rates (like mileage) in an expense report. Make sure your employees know how much time they have to provide you with these documents.

You can reimburse an employee without receipts, but the IRS requires receipts for you to get a tax write off. Make sure you’re informed of these rules via the IRS website. Otherwise, a payroll professional can help you.

Next, you need to process the payment. Small business reimbursements are often processed through payroll along with regular wages. The process varies depending on what software you use, but there should be a section clearly marked for adding a reimbursement amount.

How Taxes Apply to Reimbursements

Reimbursements are not usually taxable for you or your employee. The amount the employee spends is the amount the employee gets back.

An exception would be if an employee goes over a reimbursable amount but you pay the overage to them as a taxed income. That could happen in the instance of moving expenses, for example.

Process Reimbursements With Confidence

Now that you know about what things you can reimburse, how much time you have to do it, how it’s processed, and how taxes are involved, are you ready to check out payroll services? 

A payroll specialist stays on top of the laws for you so you don’t miss required reimbursements. Plus, they can recommend reimbursements as benefits to increase your employee satisfaction and retention.

If you’re interested in a payroll service, please consider CSI Accounting & Payroll! To see if we can be a good fit for your business, click the button below for a free consultation:

Not ready to talk? That’s okay! First, learn more about what a payroll service costs by clicking the image below: