11 Tips On Employee Expense Reimbursements
"The IRS knows full well how lax a lot of employees are about documenting their expenses--and how often employers let it slide." -- Employee Expense Reimbursements: Compliance Workshop
Whenever employment tax specialist Mindy Mayo offers her latest webinar on expense reimbursements, we can expect a lively Q&A session, as the gray areas in the IRS' expectations never stop coming. From recent sessions we've collected a handful of the most pertinent questions and Mindy's responses to them:
1. When it comes to meal and entertainment expenses, what is the IRS' dollar minimum that requires substantiation from an employee?
The IRS requires substantiation at $75--but most companies, Mindy says, lower their own bar to about $25.
2. If an employee uses a personal credit card for a business purchase, is there a time limit for reimbursement?
Most companies stick with a flat-out 60-day rule: Expenses such as these will be reimbursed up to 60 days from the time the charge was incurred or paid for by the employee, but not beyond that.
3. What is considered adequate substantiation for mileage reimbursement?
Technically, the employee has to maintain a log or record of some type; the format should be mutually agreed upon in advance. To reimburse individual trips, Mindy prefers a printout from something like Google Maps noting the miles traveled.
4. If a dinner or event is held in which the expense report simply states 'alumni event for $3000,' and there is a receipt for it on the company books, is this enough documentation for the IRS, or should we try to get a list of attendees?
To make the IRS happy, Mindy would at least get a hard number of how many people attended the event--and perhaps a copy of a contract from the caterer or event provider showing how many people they were expected to provide meals or other services for.
5. An employee has a credit card bill showing a transaction; does he still have to turn in a formal expense report?
Absolutely--there needs to be a business reason noted for the expense, which a credit card bill will rarely make clear.
6. We bought a $10 gift card for an employee as a way of expressing appreciation for pitching in with an office move. Does that low dollar amount mean we can forget about it?
A gift card to an employee is considered a cash or cash-equivalent reward and is subject to tax regardless of the dollar amount. There's no de minimis qualification in this area as far as the IRS is concerned. Read more on CPA Practice Advisor.