In this video, I will discuss the importance for companies to have an Accountable Expense Reimbursement Plan and include the benefits of having one set up.

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An accountable expense plan is a type of arrangement that reimburses employees for workrelated expenses. For an expense plan to be considered accountable, it must meet the criteria laid out by the Internal Revenue Service (IRS) in the United States. These requirements are as follows:

1. **Business Connection**: The expense must be directly related to the business or the job. It must be an expense the employee incurs while performing their duties.
2. **Substantiation**: Employees must be able to prove their expenses, typically by providing receipts or a detailed mileage log for travel expenses. In general, this means documenting the amount, time and place, business purpose, and business relationship of each expense.
3. **Timeliness**: Employees must submit their expenses within a reasonable period of time. This is typically defined as within 60 days of when the expense was incurred, but this can vary depending on the company's specific policies.
4. **Return of Excess Reimbursements**: If an employee is overreimbursed for an expense, they must return the excess amount within a reasonable period of time.


Your accountable expense plan should also include:

**Clear guidelines**: The plan should clearly explain what types of expenses are reimbursable, how to submit an expense report, and the timeline for submission and reimbursement. The rules should be communicated clearly to all employees.
**Approval process**: The plan should include an approval process for expenses. This might involve supervisors, managers, or the accounting department.
**Audit and compliance mechanisms**: The plan should include a way to audit expense reports for compliance with the plan rules. This could be an internal audit or a thirdparty review.
**Consequences for noncompliance**: If employees do not comply with the rules of the expense plan (for example, by failing to provide adequate documentation), there should be clear consequences, such as denial of reimbursement.
**Training and support for employees**: Employees need to understand the expense plan in order to comply with it. The plan should include resources for training and supporting employees in understanding and following the expense rules.

An accountable plan brings tax benefits to both employees and employers.

For Employees:

1. **No Reporting of Reimbursed Expenses as Income**: Under an accountable plan, reimbursements are not considered income. This means employees do not need to report these amounts on their tax returns, and these amounts are not subject to income tax or payroll taxes (like Social Security and Medicare).
2. **No Need to Itemize Deductions**: Since the reimbursement is not counted as income, employees don't have to itemize the expenses to deduct them on their personal income tax return, which is a significant advantage, particularly after the Tax Cuts and Jobs Act of 2017 that increased the standard deduction, reducing the number of taxpayers for whom itemizing deductions would be beneficial.

For Employers:

1. **Reduced Payroll Taxes**: Similar to the advantage for employees, reimbursements under an accountable plan are not subject to payroll taxes. This reduces the company's share of FICA (Federal Insurance Contributions Act) taxes (Social Security and Medicare).
2. **Deductible Business Expenses**: The expenses reimbursed under the accountable plan are generally deductible for the company as business expenses. This can lower the company's taxable income, and therefore, its tax liability.
3. **Improved Employee Satisfaction**: By creating a plan that allows for the reimbursement of employee expenses in a taxefficient manner, companies can increase employee satisfaction and morale. This indirect benefit can help in talent retention and attraction.

Remember that to take advantage of these benefits, the accountable plan must meet IRS requirements (business connection, substantiation, returning excess reimbursements, and timeliness), as mentioned in the previous response.

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