With over 445 million business trips made each year, it can be surprising to learn that travel expense reimbursement is not mandated by the law. Instead, it falls on you and your organization to manage travel expense reimbursement for employees. There are many benefits to doing so, and this information may help you decide which business travel expenses are reimbursable, and what options your business travel reimbursement policy needs to include.
The Benefits of Reimbursement
The primary benefit of travel expense reimbursement is being able to declare them against your business’ income tax. As a legitimate business expense, it can be worth your while to look closely at how travel expenses can be incorporated into your annual tax return. Some work-related travel expenses may also be eligible for deductions on an employee’s personal tax return as well, providing a benefit not only to the business but to staff as well. It’s important to note, however, that IRS regulations may prevent some employees from taking advantage of these deductions. If your business is able to reimburse expenses for business trips, they can be calculated separately from an employee’s taxable income, generating a nice perk that assists in employee retention and can entice new hires to your business as well.
Common Travel Expenses
While not all business trips will incur the same expenses, specifying the most common reimbursable travel expenses is typically a good practice. While helping to organize and locate eligible deductions, this practice can also help to reduce travel costs by folding this data into budget forecasting and trip planning. Meals, ground transportation, and lodging are common travel expenses, though some businesses may consider adding other costs such as internet or phone bills as specific equipment and material costs, especially for businesses who do commerce abroad or are commonly using work data on the go.
Ultimately, it is up to the business which travel expenses you will consider for reimbursement, but equal and fair treatment of employees may necessitate an outline of when or where those expenses can occur. For example, if you decide to reimburse for meals while traveling, be specific — Will meals be eligible for reimbursement once they leave their home, or will only destination meals be considered for reimbursement? Will they be expected to pay for travel to the airport out-of-pocket? All of these factors can play into which expenses are considered for business travel reimbursement, as well as giving clarity to the employee in regards to what they are or aren’t expected to pay for independently.
Types of Travel Expense Reimbursement
There are two primary methods of travel expense reimbursement: Per diem, or keeping an “accountable plan.” Depending on the type of business, one method may suit operations better than the other.
Per diem is typically the simplest method for travel expense reimbursement. A daily budget is defined for employees during the business trip, limiting the amount of expenses an employee can charge in a day. Typically, the per diem budget includes meals, transportation, and lodging costs. It is important to note, though, that IRS guidelines in regard to per diem amounts can vary. National, abroad, and seasonal per diem can all provide coverage for different amounts, and even certain locations within the continental United States can define a different per diem. The biggest benefit of maintaining a per diem budget is that employees don’t need to track each individual expense, instead submitting only the agreed per diem amount.
Another common method of travel expense reimbursement is an “accountable plan”. This method operates through an agreement between employees and the business, deciding on the allowances or reimbursements eligible for business travel expenses. The IRS has strict guidelines as to what qualifies as an “accountable plan”, so it is best to check with local codes and guidelines before enforcing this type of reimbursement. Accountable plans can offer more flexibility, however, they also require trust and confidence in the employee as well.
Requirements for Reimbursable Travel Expenses
Specificity on what can and cannot be reimbursed can not only save a lot of headaches but can also help maintain IRS regulation compliance. To do this, you may want to set standard travel expense reimbursement requirements. For example, you may have set a limit on how much the business can spend on airfare — anything above the agreed costs may require approval by a designated travel manager, or HR personnel. Documentation for these expenses is also important; Receipts are a useful tool, but tax invoices may be necessary for some reimbursements. Additionally, it helps to be clear with employees which personal expenses will not be covered during the business trip unless agreed upon otherwise.
Best Practices for a Travel Reimbursement Expense Policy
To avoid unnecessary administrative work, or possibly even a dispute, the best practice is to have a travel reimbursement policy. This way, all employees know what is and isn’t eligible for reimbursement. Outline what is considered acceptable for documentation of expenses. Receipts, tax invoices, or itemized expense reports are just a few options for this purpose. Additionally, it may be beneficial to check with the IRS’ local policy on travel, gifts, transportation, and meal deductions. Reimbursable travel expenses costs should be clearly stated in the business’s travel reimbursement policy, and clearly itemized through documentation from the employee. Without adequate receipts and records, no costs can be reimbursed at all, and tax deductions will be impossible to file.
The timeline of expense declaration is another paramount factor employees need to know to smoothly run a travel reimbursement expense policy. Typically around 30 days, having a strict submission deadline can prevent employees from missing expenses, or attempting to claim old travel expenses that are no longer reimbursable. This guideline should also define the payment method for reimbursed items — Some companies may opt to fold it into an employee’s wages, while others may require an employee to submit an invoice to the business. Regardless of the choice, the IRS will require a particular form based on your policy, so be sure to cross-reference your travel expense policy with IRS reimbursement guidelines.
It’s Time to Take the Next Step
Travel expenses are unavoidable in a global marketplace, and adequately maintaining a travel expense policy is a great way to help a business organize and recoup costs on travel. In addition to saving money on income deductions, policies also provide peace of mind for employees and business owners alike. Contact Telios Travel today and get started on your travel expense policy journey!
