Allowable Expenses Associated with Services
If an individual engages in activities that primarily benefit the University, they are providing services to the University. For expenses confirmed to be associated with services provided to the University, when the payee is an employee, it must be determined if the expenses meet Accountable Plan rules before taxability and reporting requirements for a reimbursement can be addressed.
Accountable Plan Rules
To meet Accountable Plan rules, the IRS requires an employer’s plan to include the following factors:
- The expense is an allowable business expense.
- The expense is accurately, adequately, and timely accounted for.
- Supporting documentation is required
- For the University’s plan, the reimbursement is considered timely reported if substantiated within 90 days (30 days over the time suggested by the IRS)
- Any excess reimbursement is timely returned.
See Policy 9.10 General Expenditure Policy, Accounts Payable’s Employee Reimbursements page, or contact Accounts Payable for additional questions regarding Accountable Plan rules and University substantiation requirements.
Expenses reimbursed to employees that meet the University’s Accountable Plan rules are considered University business expenses and, as such, are not reportable or taxable to the individual. For example, when an employee travels on University business, the timely and properly substantiated travel expenses are University business expenses, and therefore, are not reportable or taxable for them.
Allowable expenses reimbursed to employees that do not meet the University’s Accountable Plan rules, or to independent contractors (not subject to 90-day rule) that do not meet substantiation requirements, are required to be treated as compensation. Such expenses are reportable as wages and salaries on:
- IRS Form W-2 for employees,
- IRS Form 1099 NEC for independent contractors when total payments during a calendar year meets or exceeds $600, or
- IRS Form 1042-S if the independent contractor is a nonresident alien.
Examples of expenses associated with services:
- Expenses for an employee to attend a work-related conference, work-related workshop or training, or to perform other employee duties on University business.
- Expenses for an independent contractor to perform services under contract with the University.
- Expenses for a non-employee student or visitor to participate in a conference or workshop hosted or organized by the University where the participation primarily benefits the University. Such participation includes:
- Presenting at the event,
- Participating in round table discussions, and/or
- Sharing ideas and knowledge in any other means.
Note: If the purpose of the event is specifically for the participant’s own training/study, the activity is primarily benefiting the participant. Reimbursement would therefore be classified as scholarship payments to the participants.
Allowable Expenses Not Associated with Services
If no service is provided to the University, the expense reimbursement must be considered income to the individuals. The type of income and the tax reporting requirements depend on the facts and circumstances:
Examples of expenses not associated with services:
- Expenses, with the provision of a University business purpose, for a job candidate’s significant other to accompany the candidate for a second interview - reportable as other income to the job candidate on IRS Form 1099 NEC
- Expenses for a student (University student or student from other institution) to attend a conference for the student’s own training or study – reportable as scholarship income to the student on IRS Form 1042-S if they are a nonresident alien for tax purposes