Hello kbowling,

If you reimburse your employees for expenses using an accountable plan, then you are not required to include the amount of those reimbursements in the employee's taxable income. An accountable plan is one where the employee provides you with receipts for their actual expenses incurred, and you reimburse them the exact amount of their expenses.

If you were to simply give them a flat travel and entertainment allowance and did not require that they justify their expenditures, then the allowance would need to be included as part of their taxable income.

So if you pay them for their expenses under an accountable plan, those reimbursements are not subject to tax. If you then lower their commissions because of your new reimbursement policy, then in effect you are simply paying them a lower rate of pay, and only the amount you actually pay them is subject to federal, state, SS and Medicare taxes.

The guidelines for reimbursing employees for travel and entertainment expenses can be found in IRS Publication 463.

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Thank you kbowling

Hello again kbowling,

You are not subject to a 50% limit on these deductions as long as you use an accountable plan and as long as you only reimburse your employees for the actual amount of their expenses.

Please refer to Page 11 of Publication 463 which discusses the 50% limit on meal and entertainment expenses, and the fact that this limit does not apply under an accountable plan.

http://www.irs.gov/pub/irs-pdf/p463.pdf

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Thank you kbowling

Hello again kbowling,

Both meals and entertainment expenses are covered under this same rule. If those expenses are reimbursed under an accountable plan, then the entire cost is deductible.

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Thank you again kbowling