How do I document employee expense reimbursements under an accountable plan, including a reimbursement form or template?

What conditions must an accountable plan meet?

The Treasury regulation on reimbursement arrangements, 26 CFR 1.62-2, sets three requirements: business connection, substantiation, and returning amounts in excess of expenses. When an arrangement meets them, the regulation says amounts paid under it, up to the substantiated expenses, are not wages, are not subject to withholding and employment taxes, and are excluded from the employee's gross income. Under the same regulation, one employee's failure to substantiate does not change how other employees' payments are treated.

Each requirement needs a record in your own process that shows it was met:

What does business connection require of each claim?

The regulation covers only business expenses that are allowable as deductions and that the employee paid or incurred in connection with performing services as your employee. Three more rules in the same paragraph, and one of the regulation's examples, shape how you pay:

• No payment regardless of expenses. If you pay an amount whether or not the employee incurs, or is reasonably expected to incur, business expenses, the arrangement fails and everything paid under it is treated as nonaccountable.
• Non-deductible costs form a second arrangement. If you also pay for bona fide business-related costs that are not deductible employee expenses, the regulation treats that part as a separate arrangement whose payments are all nonaccountable. One exception: where a meal or entertainment payment falls into the second arrangement solely because of the section 274(n) limit, the regulation says the nondeductible amount is neither treated as gross income nor subject to withholding and employment taxes.
• Reimbursements must be identifiable. When a reimbursement and wages are combined in one payment, the regulation requires the reimbursement to be identified, either by a separate payment or by specifically identifying its amount.
• Allowances without substantiation. The regulation's own example, a monthly allowance for small office expenses paid under an arrangement that does not require employees to substantiate the expenses or return the excess, is a nonaccountable plan; a round monthly "expense" sum with no itemised claim behind it fails the same way.

On each claim, business connection shows in a business purpose that names the customer, job or trip, and in the approver's confirmation that the policy covers the cost.

What must each claim record?

26 CFR 1.62-2 requires the arrangement to have each business expense substantiated to the business, under whichever of two rules applies, within a reasonable period:

• Expenses governed by section 274(d). The regulation lists travel, entertainment, use of a passenger automobile or other listed property, and other business expenses governed by section 274(d). Enough information to meet section 274(d) must be submitted; for travel away from home, that is the amount, time, place and business purpose of the expense.
• Other business expenses. The claim must let the business identify the specific nature of each expense and conclude that it is attributable to the business. Grouping expenses into broad categories such as travel, or using vague terms such as miscellaneous business expenses, is not enough.

IRS Publication 463 describes adequate accounting as a record in which each expense was entered at or near the time it was incurred, together with documentary evidence such as receipts. It says documentary evidence is ordinarily adequate if it shows the amount, date, place and essential character of the expense.

A card-statement line or payment screenshot shows an amount and a date but not what was bought or why, so it cannot stand alone as a claim. Which expenses need a receipt, and the receipt thresholds, are covered in the guide on IRS receipt requirements; mileage and per diem allowances substantiate differently and have their own guides.

By when must expenses be substantiated and excess returned?

26 CFR 1.62-2 sets no single deadline: a reasonable period depends on the facts and circumstances. It offers two safe harbors, and a policy that adopts one gives everyone a date to work to.

The regulation's fixed date method treats each of these as within a reasonable period:

• An advance made within 30 days of when the expense is paid or incurred
• An expense substantiated to the business within 60 days after it is paid or incurred
• An amount returned within 120 days after the expense is paid or incurred

Under the regulation's periodic statement method, you give employees statements at least quarterly showing any amount paid beyond their substantiated expenses and asking them to substantiate the rest or return the unsubstantiated amount within 120 days of the statement; anything substantiated or returned in those 120 days counts as timely.

The regulation bars both safe harbors for any year in which the business has a plan or practice of paying employees more than their substantiated expenses while avoiding reporting and withholding on the excess. It also lets the business treat any amount not substantiated or returned within the safe-harbor periods as outside a reasonable period.

To schedule around the fixed date method, require claims within 30 days of each expense, review and pay in the next cycle, and settle each advance with its claim so any excess comes back well inside 120 days. That leaves a month to chase a late claim before the 60-day mark.

What fields should the reimbursement form have?

The form below carries every element the rules above call for except the record of use that 26 CFR 1.62-2 lists for a passenger automobile or other listed property; adapt the wording, but keep every field.

Leave bank details off the form and pay through the details already on record for the employee, so a claim cannot redirect money. Change the details on record only after confirming the request with the employee in person or through a phone number already on file, never through the channel the request came in on and never as part of a claim.

How do receipts stay with the claim?

Number each receipt to match its line, attach it to the claim itself, and keep the form, receipts, review, approval and payment reference together under the claim number. A form that points to receipts nobody can find substantiates nothing. The IRS page What kind of records should I keep says all requirements that apply to hard copy books and records also apply to electronic records, and that records should be kept in an orderly fashion and in a safe place, organised by year and type of income or expense. If you scan receipts and keep only the images, read Publication 583, Starting a Business and Keeping Records, to which that IRS page refers for more detailed information, before discarding any paper original.

What about spending on a company card?

Card spending goes on the same form. Publication 463 says the amounts an employee must account for include amounts charged to the employer by credit card. Mark those lines as company card with nothing to pay, and note the claim number against the matching card-statement line so its purpose and receipt can be traced from the statement.

Who reviews and approves a claim before it is paid?

Neither 26 CFR 1.62-2 nor Publication 463 names who must approve a claim, so the review below is a control you set rather than a legal requirement. Publication 463 does list an employer that doesn't use adequate accounting procedures to verify expense accounts among the cases where employees may have to prove their expenses. Before money moves, a reviewer who is not the claimant checks that:

• Every line has a date, vendor and place, what was bought, an amount and a business purpose.
• Every line has its receipt or other documentary evidence attached.
• Each expense is a business cost the policy covers.
• The claim arrived within the policy deadline.
• Card lines match the card statement, and advance lines match the advance register.

The reviewer records the result, their name, the date and the approved amount on the form. A claim with a missing element goes back with the gaps listed and a resubmission date inside the deadline; pay only the lines that pass. No one approves their own claim: an approver's claims go to their manager or an owner.

A claim that misses the policy deadline but is substantiated inside the safe harbor (under the fixed date method, within 60 days after the expense) is still within a reasonable period under 26 CFR 1.62-2: review it as normal and note that it was late. A claim substantiated later is outside the safe harbor, and the regulation leaves whether it met a reasonable period to the facts and circumstances. Do not pay it as a routine reimbursement: hold it, record the dates and refer its treatment to whoever handles payroll.

What changes when the claimant is an owner who is also an employee?

This applies only where the owner is an employee of the business: 26 CFR 1.62-2 covers expenses incurred in performing services as an employee, so an owner who is not one is outside this arrangement. Publication 463 treats an employee as related to the employer when the employer is a corporation in which the employee owns, directly or indirectly, more than 10% in value of the outstanding stock; its definition also covers certain family members and certain trust relationships. It says a related employee may have to prove their expenses even after giving the records to the employer, so an owner-employee should keep a personal copy of each claim and its receipts. Send an owner's claim to another owner or officer; if no one else can approve, have your outside accountant or bookkeeper review the claim and receipts before payment.

How are advances tracked and any excess recovered?

A claim paid after the expense can never leave an excess; an advance can. 26 CFR 1.62-2 treats an advance as meeting the return-of-excess requirement only if the amount is reasonably calculated not to exceed the expected expenses, it is paid within a reasonable period of the day those expenses are paid or incurred, and any amount beyond the substantiated expenses must be returned within a reasonable period after the advance is received. The regulation's example of a failing arrangement is a continuing $1,000 advance, topped up by each substantiated amount, for expenses not expected to exceed $400 a quarter.

Keep an advance register with one line per advance, recording:

• Advance number, employee and purpose
• Date issued, amount and expected expense dates
• Settlement claim number and amount substantiated
• Amount returned, date returned and remaining balance

Settle every advance on a claim form that shows its advance number, and record any returned excess against it the day it arrives. An open balance nearing the deadline gets a written reminder; under the periodic statement method, the statement is that reminder. If the balance is still open when the safe-harbor period ends, close the register line as not returned on that date and pass it to whoever runs payroll; clearing it from employee advances belongs with its payroll treatment, covered in its own guide.

What happens when a claim or the arrangement fails?

26 CFR 1.62-2 changes how the payment is treated, not just the paperwork:

How a nonaccountable amount is taxed, run through payroll and reported on the W-2 is covered in their own guides.

How should the reimbursement be recorded in the books?

Code each approved line to the expense account for what was bought, such as travel or job supplies, never to wages. FASB's Concepts Statement No. 8 defines expenses as the using up of assets or incurring of liabilities from delivering goods, rendering services or carrying out other activities, which is what the reimbursed cost is. Keeping it out of wage accounts keeps the ledger consistent with the regulation's treatment of accountable-plan amounts. Post only lines paid from the employee's own funds or settled against an advance; company-card lines are already booked from the card statement, so note the claim number against them instead of posting them again.

An advance is not an expense when paid. The employee must substantiate it or pay it back, and the same FASB chapter lists the legally enforceable right to require other parties to make payments or render services among rights that give rise to assets. Record it in an employee-advances asset account and clear it as the claim is approved and any excess returned:

The software steps are covered in the guide on recording and paying a reimbursement in accounting software.

How long must the file be kept, and how is a past claim found?

IRS Publication 15 lists records of expense reimbursements provided to employees, including substantiation, among the employment tax records an employer keeps, and says they should be available for IRS review. Neither Publication 15 nor the IRS page How long should I keep records? says which record-keeping period governs a reimbursement file as such. That page says records supporting a deduction shown on a return are generally kept until that return's period of limitations runs out, so keep each file until the longest period below that applies to it has run:

On that page, income tax periods run from the date the return is filed, and a return filed before its due date counts as filed on the due date.

To find a past claim, keep a register of claim number, employee, expense dates, amount, approval date and payment reference, and file each claim under its number by year. A payment on the bank statement then leads to the claim, and the claim to its receipts.

What should the written reimbursement policy say?

Section 62(c), as 26 CFR 1.62-2 restates it, disqualifies an arrangement that does not require the employee to substantiate covered expenses to the payor, or that gives the employee the right to keep any amount beyond them. Publication 463 says the employer should tell employees what method of reimbursement is used and what records they must provide. A written policy, issued to every employee, shows those requirements existed before any claim was paid. It should cover these points:

• Coverage. It applies to employees; contractors' expenses are documented differently.
• Eligible costs. It says what may be claimed and what may not, such as personal costs.
• Claim contents. It lists what each claim must contain and which evidence to attach. It requires employees to note the customer, job or trip on or with each receipt when they incur the cost, and to build the claim from those notes.
• Deadlines. It sets deadlines for claims, advance settlement and returning excess, and names the safe harbor used.
• Advances. It says when advances are available, how they are sized and how they are settled.
• Company cards. It requires card spending to be substantiated on the same form.
• Approval. It sets the approval route, including for approvers' and owners' own claims.
• Failures. It says what happens to incomplete claims and unreturned excess, and that a late claim substantiated inside the safe harbor is reviewed as normal while one substantiated outside it is held and referred to payroll rather than paid as a routine reimbursement.

If you have been paying case by case with nothing written, write the policy now, issue it with the form, keep each employee's signed acknowledgement, and apply it to expenses from its effective date. Reissue it whenever it changes. Writing the policy does not settle how payments already made are treated; that is determined elsewhere.

What does one claim look like from submission to filing?

Lena, a service technician, travels overnight on March 3–4 to install equipment for a customer on job 4471.

1. Submission. On March 9 she submits claim RB-0142: airfare of 312.80 on the company card, and a checked-bag fee of 35.00, one hotel night at 164.00 and mounting brackets at 47.35 on her own card. Each line carries its date, vendor, place, item, amount, job 4471 install as purpose and a numbered receipt.
2. Review. On March 10 the operations manager finds the bag-fee receipt missing and returns the claim with that gap listed. Lena attaches the airline's receipt on March 11, well inside the 60-day safe harbor.
3. Approval. On March 12 the manager marks the claim complete, approves 246.35, and signs and dates it. The airfare line is approved with nothing to pay.
4. Payment. On March 13 the bookkeeper pays 246.35 by transfer, separate from payroll, to Lena's account on record and writes the transfer reference on the claim.
5. Ledger. The airfare was booked from the card statement with RB-0142 noted against it, and the reimbursement is coded to expense accounts, as in the entries below.
6. Filing. The form, four receipts, the review note, the approval and the transfer reference are saved together as 2026/Reimbursements/RB-0142, and the claim goes on the register.