Accountable Reimbursement Plans
Tax Cuts and Jobs Act
Due to the Tax Cuts and Jobs Act of 2018, individuals cannot deduct business related expenses on their tax return
IRS section 1.62
The IRS states Accountable Reimbursement Plans (Section 1.62 of the tax code) may be implemented by employers to reimburse employees for approved business-related expenses
IRS guidelines for Accountable Plans
If properly executed, these reimbursements are exempt from FICA, FUTA and income tax. However, these plans must follow 3 main guidelines to be considered accountable and therefore tax exempt.
1. Expenses must be legitimate business expenses
These expenses must be incurred by the employee in performance of the their job. It is the employer's responsibility to define what are legitimate business expenses
2. Substantiation
Each expense must be substantiated and the employee must provide a receipt or invoice for every expense
3. Excess Reimbursements
Any excess reimbursement not substantiated must be returned to the employer within a reasonable time period
Employer Advantages
Potential Savings to the Employer
No additional workload for the employer
Potential Savings to the Employer
Offers employers the ability to save money while providing an added benefit to their employees
Not an Insurance Plan
No additional workload for the employer
Potential Savings to the Employer
Because the ARP is not insurance, there are no renewal cycles or annual administration increases that the employer has to incur.
No additional workload for the employer
No additional workload for the employer
No additional workload for the employer
Many employers don't offer additional benefits to their employees because of the additional workload that it places on the employer. Eastwood Consulting handles all communications, enrollments and administration for the plan from start to finish.
Employee Advantages
Reimbursed business expenses
Legitimate Expenses are Tax-Exempt
Legitimate Expenses are Tax-Exempt
Allows legitimate business expenses incurred by employees to be reimbursed by the employer
Legitimate Expenses are Tax-Exempt
Legitimate Expenses are Tax-Exempt
Legitimate Expenses are Tax-Exempt
The amount of expenses qualified as reimbursed expenses are not subject to FICA, FUTA or Social Security taxes
Increases Take Home Pay
Legitimate Expenses are Tax-Exempt
Increases Take Home Pay
When administered correctly, employees can see a substantial increase to their overall take home pay.