https://www.sikich.com

Is Your Construction Company’s Accountable Reimbursement Plan Compliant?

Sikich

Feb 18 2015

2 min read

Not long ago, the IRS released Revenue Ruling 2012-25, which serves as a reminder of the rules to employers whose accountable reimbursement plans may have fallen out of compliance. The ruling largely focuses on the “business connection” requirement.

Specifically, the IRS clarifies that an arrangement that re-characterizes taxable wages as nontaxable reimbursements or allowances does not satisfy the business connection requirement of the accountable plan rules. According to the agency, an employer re-characterizes wages if it:

Temporarily reduces taxable wages and substitutes nontaxable reimbursements until total expenses have been reimbursed and then increases wages to the previous level.
Pays a higher amount as wages to an employee when he or she doesn’t receive a nontaxable reimbursement, and a lower amount as wages when the employee also receives a nontaxable reimbursement.
Routinely pays a nontaxable reimbursement to an employee who hasn’t incurred bona fide business expenses.

The guidance also illustrates how Revenue Ruling 2012-25 may be applied to various types of employers. (Ask your tax advisor for help fully interpreting it.)

Despite apparent complications, accountable plans are indeed a good thing. Reimbursements aren’t reported as income, so you should be able to avoid payroll taxes and W-2 reporting while claiming deductions for these expenses. Meanwhile, employees don’t have to report reimbursements as income or claim the expenses as miscellaneous itemized deductions. The tricky part, of course, is following the rules.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

About the Author

Sikich

From accounting, tax and assurance to technology and advisory, Sikich offers a unique formula of professional services to businesses and organizations across the country. By pairing subject matter expertise with the real-world experience gained as entrepreneurial leaders, we provide clarity to your complex challenges and solutions to strengthen every dimension of your business.