Accountable Plans. A Win-Win solution for employers and employees working from home.
Reimbursing Home Office expenses is beneficial for the employee and the employer as well. So, if you haven’t started to implement the Accountable Plan for your remote employees, we explain here some basic information to understand how this works.
Let’s start by saying that the main benefit of doing this is for Tax purposes for you and your employees. In 2017 The Tax Cuts and Jobs Act prohibited the employees from deducting on their tax return all work-related expenses. Meaning, only Self-employed individuals are able to do so in their Schedule C. The tax benefits for the employees is simple, they are now getting pay for some of those expenses. As an employer, you get the full deduction for those expenses. Is a win-win situation.
The Accountable plan is easy to set up, it is important to always be in sync with your employees and explain from the beginning which ones are the expenses they can consider and how everything is calculated.
To make sure you are in compliance with the IRS be aware of the following rules:
The expenses must be job-related only.
You need to request the employee receipts or proper documentation to validate the expense and this has to be turned in in a reasonable time.
If you as an employer overpaid the employee for reimbursement, the employee has to return the excess within a reasonable time or this will be added as wages and shown on their W2.
The home office is probably the most common example. The employee can be reimbursed for a portion of their home expenses like Insurance, tax properties or rent, utilities, internet, and some others. This is done by simple math, the home office represents a percentage of the square footage of the house. The same percentage of the sum of all the home expenses is the one you will receive as reimbursement. Once again, make sure all of this home office is used 100% for work.
There are a few other expenses that apply for reimbursement, like travel expenses (mileage, gas, lodging), meals expenses, uniforms and others.
For some expenses like travel and meals, there is no receipt needed when they are under $75.
The number of employees working from home is increasing due to the pandemic. Getting to know all of these benefits is definitely key to saving some extra cash.
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