How you treat reimbursements depends on the arrangement you have with your employer.
There are two basic types of reimbursement arrangements—accountable plans and nonaccountable plans. You can tell the type of plan you are reimbursed under by the way the reimbursement is reported on your Form W-2.
The following rules about reimbursement arrangements also apply to expense allowances received from your employer.
To be an accountable plan, your employer's reimbursement arrangement must require you to meet all three of the following rules.
- Your expenses must have a business connection—that is, your expenses must be deductible under the rules for qualifying work-related education explained earlier.
- You must adequately account to your employer for your expenses within a reasonable period of time.
- You must return any reimbursement or allowance in excess of the expenses accounted for within a reasonable period of time.
If you are reimbursed under an accountable plan, your employer should not include any reimbursement in your income in box 1 of your Form W-2.
If your employer included reimbursements in box 1 of your Form W-2 and you meet all three rules for accountable plans, ask your employer for a corrected Form W-2.
Even though you are reimbursed under an accountable plan, some of your expenses may not meet all three rules for accountable plans. Those expenses that fail to meet the three rules are treated as having been reimbursed under a nonaccountable plan
Under an accountable plan, if your expenses equal your reimbursement, you do not complete Form 2106 or 2106-EZ. Because your expenses and reimbursements are equal, you do not have a deduction. taxmap/pubs/p970-059.htm#en_us_publink1000178716
If your expenses are more than your reimbursement, you can deduct your excess expenses. This is discussed later under Deducting Business Expenses
Because your excess meal expenses are subject to the 50% limit, you must figure them separately from your other expenses. If your employer paid you a single amount to cover both meals and other expenses, you must allocate the reimbursement so that you can figure your excess meal expenses separately. Make the allocation as follows.
- Divide your meal expenses by your total expenses.
- Multiply your total reimbursement by the result from (1). This is the allocated reimbursement for your meal expenses.
- Subtract the amount figured in (2) from your total reimbursement. The difference is the allocated reimbursement for your other expenses of qualifying work-related education.
Your employer paid you an expense allowance of $2,000 under an accountable plan. The allowance was to cover all of your expenses of traveling away from home to take a 2-week training course for work. There was no indication of how much of the reimbursement was for each type of expense. Your actual expenses equal $2,500 ($425 for meals + $700 lodging + $150 transportation expenses + $1,225 for books and tuition).
Using the steps listed above, allocate the reimbursement between the $425 meal expenses and the $2,075 other expenses.
| ||1.|| $425 meal expenses |
$2,500 total expenses
| ||2.||$2,000 (reimbursement) × .17|
| || || = $340 (allocated reimbursement for meal expenses)|
| ||3.||$2,000 (reimbursement) − $340 (meals) |
| || || =||$1,660 (allocated reimbursement for other qualifying work-related education expenses)|
Your excess meal expenses are $85 ($425 − $340) and your excess other expenses are $415 ($2,075 − $1,660). After you apply the 50% limit to your meals, you have a deduction for work-related education expenses of $458 (($85 × 50%) + $415).
Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a nonaccountable plan with your wages, salary, or other pay and report the total in box 1 of your Form W-2.
You can deduct your expenses regardless of whether they are more than, less than, or equal to your reimbursement. This is discussed below under Deducting Business Expenses
. An illustrated example of a nonaccountable plan, using Form 2106-EZ, is shown at the end of this chapter.
Reimbursements you received for nondeductible expenses are treated as paid under a nonaccountable plan. You must include them in your income. For example, you must include in your income reimbursements your employer gave you for expenses of education that:
- You need to meet the minimum educational requirements for your job, or
- Is part of a program of study that can qualify you for a new trade or business.
For more information on accountable and nonaccountable plans, see chapter 6 of Publication 463.