ACCOUNTABLE PLAN Meaning and
Definition
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An accountable plan refers to a system or arrangement put in place by an employer to reimburse employees for business-related expenses while ensuring compliance with tax regulations. It is a set of rules that govern the process and criteria for reimbursement and documentation of these work-related costs. Under an accountable plan, employees are required to provide detailed records and substantiation of their expenses, such as receipts or invoices, as proof of their validity and business purpose.
The primary objective of an accountable plan is to establish accountability and transparency regarding employee expenses while safeguarding against tax evasion. By designating expenses as business-related and substantiating them properly, both the employer and employee can benefit from tax advantages. An accountable plan allows employers to deduct these reimbursed expenses as business expenses, lowering their overall tax liability. Simultaneously, it allows employees to exclude the reimbursed amount from their taxable income, which in turn reduces their tax obligation.
To qualify as an accountable plan, certain criteria must be met. Employees must substantiate expenses within a reasonable period, such as providing receipts within 60 days. They should only request reimbursement for legitimate business expenses, not for personal or non-work-related costs. Any excess amount reimbursed must be returned to the employer promptly. Furthermore, the accountable plan should be adequately documented, outlining the parameters and procedures for expense reimbursement.
Overall, an accountable plan provides a structured framework for reimbursing employees' business expenses and aligns with tax regulations, ensuring both employer and employee benefit from the associated tax advantages while promoting transparency and accuracy in expense reporting.
