Be Accountable! Use Accountable Plans or Suffer the W-2 Consequences

It seems like it would be seamless. Employers reimburse employees for reimbursable business expenses, like business travel and lodging, and employees receive the nontaxable reimbursement. But this area of tax law is riddled with potholes that can (technically speaking) cause advances and reimbursements to be treated as taxable wage income. Be sure you comply with the accountable plan rules of Treas. Reg. § 1.62-2.

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Related Content 

• Fringe Benefit Rules (IRC § 132)
  Learn how reimbursements paid through an accountable plan are nontaxable fringe benefits excluded from income under I.R.C. § 132(a)(3) as “working condition fringes.” Those payments are deductible to the employer under I.R.C. Section 162 and would be so even if they constituted taxable wages (which they shouldn’t). Consider the impact of the recent Dobbs v. Jackson Women’s Health decision by the U.S. Supreme Court. Some employers have indicated they will pay employees for their travel expenses to seek out-of-state abortion services. Regardless of the taxation of these benefits to employees (they likely are nontaxable, at least in part), the amount paid will be a deductible Section 162 expense to the employer.

• Travel Policy (Including COVID-19 Travel)
  Include this travel policy in an employee handbook or distribute it as a standalone policy. This travel policy is based on federal law.

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  • Business Entities. IRS updates Notice 2022–03increasing the standard mileage rate for business use of a personal vehicle to 62.5 cents-per-mile for the last six months of 2022. Announcement 2022-13. The original 2022 58.5 cents-per-mile rate applied through June 30, 2022. The mileage rates for moving and medical expenses have increased similarly.
  • Business Entities. IRS amplifies  Proc. 2022-3, 2022-1 IRB 144, which sets forth areas of the Internal Revenue Code relating to issues on which the IRS will not issue letter rulings or determination letters, and IRS announces that it will not issue letter rulings on whether certain transactions result in an employer reversion within the meaning of I.R.C. § 4980(c)(2). Rev. Proc. 2022-28.
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