Reimbursable Expense

Publication Date :

02 Nov, 2023

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Table Of Contents

What Is A Reimbursable Expense?

A Reimbursable Expense pertains to costs that an employee covers on behalf of the company. As the employee fronts these expenses personally, it becomes the responsibility of the company to reimburse them accordingly. Additionally, the term can also encompass charges incurred by a company in relation to customer service.

Examples include reimbursable expenses on official travel and lodging expenditures, transportation fees, communication costs, delivery charges, office-related expenses, meals, and entertainment. Employees are typically required to provide receipts or evidence to substantiate the expenses they have incurred. Only after this verification, the company compensates the employee.

What Is A Reimbursable Expense?

The reimbursable expense definition states this amount as an employee's expenditure while performing certain activities for the company. These expenses will be compensated to the employee once they submit sufficient supporting documents such as receipts, etc.
It also refers to expenses a company undertakes as part of its customer service. For instance, delivery charges, postage fees, communication expenses, etc., are reimbursable to the company by the customer.
A list of reimbursable expenses includes those incurred during travel, transportation, lodging, meals, entertainment, etc.

Reimbursable Expense Explained

Reimbursable expenses in the context of official business activities refer to costs incurred by employees while performing their work-related responsibilities. These expenses encompass a range of items, including travel, lodging, transportation, and client entertainment. They are recognized as essential components of the company's business-related expenditures.

Employees may use personal funds or company-issued credit cards for business expenses. When they pay out of pocket, they can seek reimbursement. To do so, they must provide evidence, usually in the form of receipts, to support their claims. This proof is vital for a complete and unquestionable reimbursement. It is important to remember that personal expenses are usually not eligible for reimbursement unless stated otherwise.

To dispel a common source of confusion, it is worth clarifying the Internal Revenue Service's (IRS) treatment of these expenses for tax purposes. The IRS specifies that employees need not report the reimbursed amounts as income on their tax returns, provided the company follows an accountable plan. Under such a plan, allowances or reimbursements are not considered income and are exempt from withholding.

For reimbursable expenses accounting, employees must meet specific criteria. They should be individuals incurring expenses on the company's behalf, provide proper evidence, and return excess reimbursements. Once these conditions are met, employees can deduct the reimbursed amount from their income. Promptly notifying the employer within 30 days of travel or 60 days of incurring expenses is crucial.

Reimbursements are closely scrutinized to prevent personal expenses from being reimbursed against company policy. Companies in industries with frequent employee travel must establish clear reimbursement policies and use software for efficiency.

Notably, expenses a company incurs for customers, like postage, phone fees, and delivery charges, can also be reimbursed. These expenses are initially recorded and added to customer invoices, following a double-entry accounting system.

Examples

Consider the following examples for additional clarity on the concept.

Example #1

Suppose Ryan is an expert in corporate downsizing and frequently embarks on business trips as part of his role. During these journeys, he covers expenses such as airfare, accommodations, and transportation using his funds. To ensure he recoups these costs, Ryan meticulously maintains a record of his expenditures, which he submits for reimbursement by the 25th of each month.

His company, recognizing the importance of timely reimbursement, processes his claims and reimburses him by the end of the same month. This practice reflects the standard procedure many organizations follow to acknowledge the financial burden on employees who incur business-related expenses and promptly reimburse them to maintain financial equilibrium and employee satisfaction.

Example #2

Kirby McInerney LLP has taken action by filing a class action lawsuit on behalf of investors who acquired Syneos Health, Inc. securities between September 9, 2020, and November 3, 2022. The lawsuit alleges that Syneos misled investors by including reimbursable expenses in its financial metrics, creating an impact on the company's stock price. This situation emerged when the 4Q21 Release indicated a 36% risk in collecting $3.8 billion of Clinical Solutions backlog.

The lawsuit addresses concerns such as business development capabilities, integration challenges, and adapting to industry changes stemming from inflating financial metrics with reimbursable expenses. Investors are provided an opportunity to participate and seek redress until September 25, 2023, underscoring the importance of transparency in financial reporting and the potential benefits for both investors and companies.

Reimbursable vs Non-Reimbursable Expenses

Reimbursable expenses are those covered by the employer, while the employee incurs non-reimbursable expenses without compensation. Let us explore the distinctions between them.

Basis	Reimbursable Expenses	Non-Reimbursable Expenses
Compensation	These expenses are covered by the employer and reimbursed to the employee.	The employee incurs these expenses but is not compensated by the employer.
Personal Expenses	Personal expenses, such as alcohol or non-business-related visits, are typically not reimbursed.	Personal expenses that an employee incurs for their purposes during official travel are not reimbursed—for example, expenses related to short visits to relatives or friends at the travel destination.
Necessity	Necessary and reasonable expenses are usually eligible for reimbursement.	Expenses considered unnecessary or excessive, such as vehicle cleaning, restaurant tips, room service, or parking fines, are typically not reimbursed.
Payment Method	These are often incurred by the employee personally, but the employer later reimburses them.	Non-reimbursable business expenses are generally paid for using the company's credit card and are not considered the employee's expenses.
Tax Treatment	These are not counted as wages or income if the company follows an accountable plan.	Non-reimbursable expenses can be claimed as a tax deduction if they exceed 2% of the employee's adjusted gross income. Still, this rule is limited to certain government employees and armed forces officials, according to the IRS.

Frequently Asked Questions (FAQs)

1. Are reimbursable expenses included on the 1099?

No, reimbursable expenses are not reported on Form 1099. These expenses are not considered taxable income, and Form 1099 primarily covers miscellaneous payments subject to taxation.

2. Do reimbursed expenses count as income?

No, reimbursed expenses generally do not count as income. When a company follows an accountable plan, reimbursed expenses are excluded from an employee's taxable income. Employees need to adhere to the company's reimbursement procedures, providing proper documentation and notifying the company of expenses within the specified timeframe to maintain their non-taxable status.

3. How to invoice reimbursable expenses quickbooks online?

In QuickBooks Online, invoicing reimbursable expenses can be done in a few simple steps. First, ensure that the expenses are marked as billable to the customer. Then, create an invoice for the customer, selecting the customer's name and adding the billable expenses. QuickBooks Online will automatically calculate the total amount, and you can send the invoice to your customer. This streamlined process allows you to bill your customers for expenses efficiently and accurately.