A reimbursement plan is a structured strategy to pay people who have incurred expenses on behalf of another entity, such as employees. Plans can be accounting or non-accounting, and cover a wide range of expenses. Tax deductions vary by jurisdiction.
A reimbursement plan is a structured strategy to pay people who have incurred expenses on behalf of another entity. The most common example of this type of plan has to do with covering the expenses that employees incur in the performance of their job responsibilities. Plans of this type help ensure that the employee is reimbursed in a timely manner, while helping the employer keep accurate records of the total cost associated with performing a given task.
Repayment plans can be structured as accounting and non-accounting. A responsible plan requires the employee to submit receipts for expenses that qualify for reimbursement. A non-liable reimbursement plan covers expenses for which a receipt is not required, although the employee must declare the expense in writing before being reimbursed. For example, an employee who takes customers out to dinner will need to present the receipt for the meal to be compensated for the expenses. At the same time, if the employee uses her private vehicle in the course of completing tasks on behalf of the employer, he or she submits the total amount of mileage used, usually on an expense voucher or claim form. The amount of the reimbursement issued is determined by the employer, in accordance with current applicable regulations and practices.
In terms of tax deductions, an employee who participates in a reimbursement plan typically cannot claim the offset expenses as deductions on their personal tax returns. The employer may claim the expenses that were reimbursed as deductions, subject to the provisions contained in the tax laws in force in the jurisdiction where the company is located. In some countries, the employee may be required to report certain forms of reimbursement as income, especially in situations such as mileage where there are no specifically documented out-of-pocket expenses.
A wide range of expenses can be covered in a reimbursement plan. Employees who travel as part of their job are often allowed to submit expenses such as airfare, lodging, car rental, and meals for reimbursement. An employee may also be compensated for expenses incurred while working on a special company project, such as serving as a company representative at a local event. Government regulations often define the scope of what is considered a reimbursable expense and what procedures must be followed in order for the employer to claim the reimbursed expense when filing tax returns. These regulations generally shape the internal policies and procedures used by a business to structure and carry out the repayment plan.
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