Don’t Keep the Change. Following the Accountable Plan Rules So Your Expense Programs Don’t Result in a W-2 Entry

Employers that reimburse employees for the expenses they incur as a result of travel or other business on behalf of the employer (reimbursement of personal expenses almost always being taxable) must adhere to the Internal Revenue Code’s accountable plan rules. If not, those advances or reimbursements will become taxable to the employee. That means that they could be subject to federal (and state) income tax withholding, Social Security and Medicare taxes, federal unemployment and state unemployment taxes, and Form W-2 reporting. This practice note shares more about how to follow the rules.

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• Tax Key Legal Developments Tracker (Federal)
  Reference our key legal developments tracker to keep up-to-date on key federal tax developments. For example, IRS announced in September the amount of per diems permitted in 2023/2024. A per diem, provided at or below prescribed rates, meets the substantiation by adequate records requirement of accountable plans. And our tracker announced issuance of IRS Notice 2023-68.  That notice sets forth the special transportation industry meal and incidental expenses rates ($69 for any locality of travel in the continental United States (CONUS), and $74 for any locality of travel outside the continental United States (OCONUS) and the rate for the incidental expenses-only deduction ($5 per day). The IRS issues this annual update of per diem rates that taxpayers may use to comply with Rev. Proc. 2019-48 which sets forth the rules for using a per diem rate to substantiate business expenses under section 274(d) and Treas. Reg. § 1.274-5.

Practical Guidance Updates 
Featuring the latest updates from your Practical Guidance account.    

•  Tax Key Legal Developments Tracker (Federal)—keep up to date with key legal developments!
  • Business Entities. Treasury and IRS announce that they intend to issue proposed regulations addressing (1) the capitalization and amortization of specified research or experimental (SRE) expenditures under R.C. § 174, as amended by the Tax Cuts and Jobs Act, (2) the treatment of SRE expenditures under I.R.C. § 460, and (3) the application of I.R.C. § 482to cost sharing arrangements involving SRE expenditures. IRS Notice 2023-63.
  • Business Entities. IRS prescribes short-term, mid-term, and long-term applicable federal rates (AFR) for the month of September, for purposes of I.R.C. § 1274(d). Rev. Rul. 2023-16.
  • Exempt Organizations. IRS revokes its determination that certain organizations qualify as tax-exempt organizations described in R.C. §§ 501(c)(3)and 170(c)(2). Ann. 2023-25, I.R.B. 2023-37.

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