Employee business expenses: Accountable plans can benefit employees

The recently passed Tax Cuts and Jobs Act eliminated many deductions for employees. If your employees have been incurring out-of-pocket expenses for such things as uniforms, tools and equipment or professional dues and licenses that you require, consider reimbursing them for these expenses.

To reimburse employees for required expenses, you can establish an accountable plan where the employees are required to submit documentation establishing the time, place and business purpose for the expenses to you. Your reimbursement to the employee is deductible on your business return and not taxable income to the employee.

If you choose not to reimburse your employees, but instead give your employees an expense allowance that can be used without substantiation, you must include the amount on their W-2. You still get a deduction for the amount paid as a wage expense, but your employee is required to pay tax on the money. Having an accountable plan in place will save you the payroll taxes on the amounts required to be included on the employee’s W-2.