Question

Martin Works as a delivery person for a local restaurant. His job requires that he use his own personal car to deliver food to customers' homes. During 2016, Martin drives 4,300 business miles. His employer reimburses him $0.35 a mile for each business mile.

A.) Discuss the tax consequences of the $1,505 (4,300x$0.35) reimbursement Martin receives if his employer has an accountable reimbursement plan.

B.) Same as part A., except that the employer has a non-accountable reimbursment plan.

C.) What are the characteristics of an accountable reimbursement plan and what distinguishes it from a non-accountable plan?

Answer 1

A. Under accountable reimbursement plan,any business expenses paid by the employer are not reported as income by them in W-2 form of the employee and hence no such income is taxable in the hands if employee. Moreover, no deductio can be claimed by the employee for such expenses. In the given case, the amount of $1505 paid by the emmployer will not be treated as his income.

B. If the employer has non accountable plan, then the business expenses paid/ reimbursed by the employer to the employee will be treated as his income in form W-2 and will be treated as taxable income. However, employee can deduct the business expenses incurred by him as itemized deductions. In the given case, under non accountable plan $1505 will be treated as income of Martin.

C. To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules.

1. Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.

2. You must adequately account to your employer for these expenses within a reasonable period of time.

3. You must return any excess reimbursement or allowance within a reasonable period of time.