A Better Plan

Employers that reimburse employees for business expenses can save payroll taxes by setting up an "accountable" plan. With an accountable plan that meets IRS rules, expense reimbursements are not treated as wages - avoiding FICA (Social Security and Medicare) taxes on those amounts. Employees must provide an adequate accounting o[ their expenses (some type of log plus receipts or other substantiation) and return any excess reimbursement or expense allowance within a reasonable period. The reimbursed expenses must have a clear business connection. Employees don't have to pay FICA taxes or income taxes on reimbursements received under an accountable plan. If there is no accountable plan in place, amounts provided to employees for business expenses are included in their income. Employees may deduct the expenses, but only if they itemize (rather than claim the standard deduction). Even then, the expense deduction is limited - and it's possible that an employee will receive no deduction. Page 1