Taxable Reimbursed Expenses

[blahbleebloo]

What is the name of your state (only U.S. law)? CA

So I work in the Accounts Payable department of my company, and we have in our expense reimbursement policy a clause that states that expenses submitted 60 days or more after the date they are incurred are considered taxable income by the IRS.

The literature I've seen on the IRS website is not very clear, so I was wondering if you smart people would help me to find something a little more concrete to reference people to when they complain about it. We've had people submit 6 months worth of expenses and then had their entire paychecks withheld...not a happy situation. My boss doesn't seem too worried, but since I typically field the angry calls, I just want to have more information in my arsenal.

I appreciate any help you can offer.

 

[irsos]

What is the name of your state (only U.S. law)? CA

So I work in the Accounts Payable department of my company, and we have in our expense reimbursement policy a clause that states that expenses submitted 60 days or more after the date they are incurred are considered taxable income by the IRS.

The literature I've seen on the IRS website is not very clear, so I was wondering if you smart people would help me to find something a little more concrete to reference people to when they complain about it. We've had people submit 6 months worth of expenses and then had their entire paychecks withheld...not a happy situation. My boss doesn't seem too worried, but since I typically field the angry calls, I just want to have more information in my arsenal.

I appreciate any help you can offer.

You will find nothing on the IRS website because this is a matter of company policy and not tax law or IRS regulations. The company policy is not an unreasonable one. Tell the deadbeats to get their expense reports in monthly and there will be no problem.

 

[davew128]

No kidding. Usually people with reimbursable expenses are practically waiting for the check to get written.

 

[blahbleebloo]

Well that sparks a whole new set of questions...

If the IRS doesn't call those late submitted expenses "taxable income" are we incurring some kind of liability by taking withholdings? Ultimately, the employee will get it back I guess if we're taking too much, but I'm concerned that we're opening ourselves up to potential problems.

I guess I'm asking if company policy can just "assign" the label of "taxable income" onto reimbursements?

 

[LdiJ]

Well that sparks a whole new set of questions...

If the IRS doesn't call those late submitted expenses "taxable income" are we incurring some kind of liability by taking withholdings? Ultimately, the employee will get it back I guess if we're taking too much, but I'm concerned that we're opening ourselves up to potential problems.

I guess I'm asking if company policy can just "assign" the label of "taxable income" onto reimbursements?

There are two kinds of reimbursements...one of those is accountable, and the other is non-accountable.

On an accountable basis, you must prove receipts and you are reimbursed the exact amount of the receipts. On a non-accountable basis you get a certain amount of money, you are taxed on it, and then its up to you to claim the expenses on your tax return.

What your company is doing is treating any late submittal of expenses reports as non-accountable (even if they are technically accountable) and then it would be up to you to keep copies of the relevant reciepts/mileage logs etc. so that you can claim the expenses on your tax return.

The company is doing it to motivate people to get in their expense reports on time. Its not illegal, but I think its a little foolish for the company to do, since they are paying employer taxes on expense reimbursements, every time they do that. Obviously though they have had a chronic problem with employees not get their expense reports in on time. However it could also have something to do with their accrual accounting as well.

 

[irsos]

There are two kinds of reimbursements...one of those is accountable, and the other is non-accountable.

On an accountable basis, you must prove receipts and you are reimbursed the exact amount of the receipts. On a non-accountable basis you get a certain amount of money, you are taxed on it, and then its up to you to claim the expenses on your tax return.

What your company is doing is treating any late submittal of expenses reports as non-accountable (even if they are technically accountable) and then it would be up to you to keep copies of the relevant reciepts/mileage logs etc. so that you can claim the expenses on your tax return.

The company is doing it to motivate people to get in their expense reports on time. Its not illegal, but I think its a little foolish for the company to do, since they are paying employer taxes on expense reimbursements, every time they do that. Obviously though they have had a chronic problem with employees not get their expense reports in on time. However it could also have something to do with their accrual accounting as well.

I would argue that since they "could" have been reimbursed but failed to take advantage of it, they may not later deduct the expenses.

 

[LdiJ]

I would argue that since they "could" have been reimbursed but failed to take advantage of it, they may not later deduct the expenses.

They are still getting reimbursed, its just being reimbursed as non-accountable, and I would disagree that they cannot deduct the expenses. They have income coming in that is directly related to the expenses.

 

[irsos]

They are still getting reimbursed, its just being reimbursed as non-accountable, and I would disagree that they cannot deduct the expenses. They have income coming in that is directly related to the expenses.

You are right - my mind wandered.