Employee Reimbursement Guide

Accountable plans (US)
What counts as a reasonable period of time (US)

An employee reimbursement policy is the written rule for paying employees back when they spend their own money on business costs: which costs qualify, what proof they must give, who approves the claim, and when it's paid. In the US, how you set up the policy also decides whether the reimbursements count as the employee's wages. Under an IRS "accountable plan", they don't.

Billed publishes this page. The US tax rules below are quoted from IRS Publication 463 (2025), Travel, Gift, and Car Expenses, and IRS Publication 15 (2026), Employer's Tax Guide, both opened on October 29, 2026. This is general information, not tax or legal advice; ask your accountant how the rules apply to your business.

Accountable plans (US)

Publication 15, written for employers, says: "To be an accountable plan, your reimbursement or allowance arrangement must require your employees to meet all three of the following rules." The three rules:

"They must have paid or incurred allowable expenses while performing services as your employees."
"They must substantiate these expenses to you within a reasonable period of time."
"They must return any amounts in excess of substantiated expenses within a reasonable period of time."

Publication 15 also says: "Amounts paid under an accountable plan aren't wages and aren't subject to income, social security, Medicare, and FUTA taxes."

If the rules aren't met, the payment is treated differently: "If the expenses covered by this arrangement aren't substantiated (or amounts in excess of substantiated expenses aren't returned within a reasonable period of time), the amount paid under the arrangement in excess of the substantiated expenses is treated as paid under a nonaccountable plan." Publication 15 says that amount "is subject to income, social security, Medicare, and FUTA taxes for the first payroll period following the end of the reasonable period of time."

What counts as a reasonable period of time (US)

Publication 463 says the definition "depends on the facts and circumstances of your situation", but that actions within these times "will be treated as taking place within a reasonable period of time":

"You receive an advance within 30 days of the time you have an expense."
"You adequately account for your expenses within 60 days after they were paid or incurred."
"You return any excess reimbursement within 120 days after the expense was paid or incurred."
"You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement."

Your own policy can set shorter deadlines, so claims are settled before payroll or month-end close. Whatever you choose, write it down.

What employees must submit

Publication 463 says documentary evidence "will ordinarily be considered adequate if it shows the amount, date, place, and essential character of the expense." It lists exceptions where documentary evidence isn't needed, including: "Your expense, other than lodging, is less than $75." Your policy can still ask for a receipt for every expense. For the categories to use, see business expense categories, and for the record itself, see how to create an expense.

A claim form or expense entry needs, at minimum:

the date, amount and vendor;
the business purpose, such as the client or project;
the receipt or other proof;
who approved it.

Submission, approval and payment

Submission. Say how claims arrive, for example through your expense tool or a set form, and the deadline after the expense.
Approval routing. Name who approves each claim, and who approves the approver's own claims. Give approvers a turnaround time so claims don't stall.
Payment timing. Pay approved claims on a set schedule, such as with the next payroll run, and show the reimbursement separately from wages. Publication 15 says that if a single payment includes both, "you must specify the amount of the reimbursement."
Advances. If you advance money before a trip, say when the employee must account for it and return any excess, within the Publication 463 times above.

Plan reimbursements into your cash flow so they're paid on time.

Worked example: settling a travel advance

The business and figures here are a sample, invented for this example.

A company gives an employee a $600 travel advance on May 1 for a trip from May 20 to May 22. The employee's expenses, each with a receipt:

Hotel: 2 nights × $190 = $380.
Train: $112.
Meals: $76.
Total substantiated: $380 + $112 + $76 = $568.

The employee submits the expense report with receipts on May 27, and returns the excess, $600 − $568 = $32, on May 29.

The advance came within 30 days of the trip, the report within 60 days of the expenses, and the $32 within 120 days, so all three fall within Publication 463's reasonable-period times.
Because the employee substantiated $568 and returned the $32, the $600 is handled under the accountable plan, and none of it is treated as wages.
If the employee hadn't returned the $32 within a reasonable period, Publication 15 says the excess would be "treated as paid under a nonaccountable plan" and subject to payroll taxes.

Related situations

Petty cash. Purchases made from petty cash use the business's own money, so they're recorded against the petty cash fund rather than reimbursed.
Contractors. Independent contractors aren't employees. How they bill you for expenses is set by your contract with them, for example as a line on their invoice. Ask your accountant before reimbursing a contractor the way you reimburse employees.
Mileage. Driving a personal car for work needs its own records; see how to track mileage for business.
State rules. Check with your accountant or a lawyer whether your state has its own rules on reimbursing employees.

For the wider policy, including spending limits and approval tiers, see how to create an expense policy, and for setting up the process, how to set up expense reimbursement. Reimbursements recorded in the right month keep your financial statements and profit margin accurate.

Where Billed fits

Billed's expense and receipt tracking page says an expense in Billed records "who you paid, when, how much and which category it belongs to, with the receipt attached to the same entry", and that "Billed's expense report can group your expenses by category." Its mobile app page says you can "Snap a photo of a receipt and attach it to a client or project." Billed's financial reporting page says "All reports in Billed can be exported for use with your accountant, bookkeeper, or tax software." To bill clients for costs you've passed through, see Billed's invoice software.

When this guide isn't for you

This page covers reimbursement policies for small US businesses with employees. If you run payroll in several countries, operate a corporate card program at scale, or have a union agreement that sets reimbursement terms, work with an accountant or lawyer on the specific rules.

Frequently Asked Questions

What is an accountable plan?

In the US, it's a reimbursement or allowance arrangement that meets three IRS rules: the expenses were paid or incurred while performing services as an employee, the employee substantiates them within a reasonable period of time, and the employee must "return any excess within a reasonable period of time."

Are employee expense reimbursements taxable?

In the US, IRS Publication 15 says "Amounts paid under an accountable plan aren't wages and aren't subject to income, social security, Medicare, and FUTA taxes." Amounts that don't meet the accountable plan rules are "treated as paid under a nonaccountable plan" and are taxed as wages. Ask your accountant how this applies to your plan.

How long do employees have to submit expenses?

IRS Publication 463 treats accounting for expenses "within 60 days after they were paid or incurred" as within a reasonable period of time, and returning any excess within 120 days. Your own policy can set a shorter deadline.

Do employees need a receipt for every expense?

Publication 463 lists exceptions where documentary evidence isn't needed, including an expense, other than lodging, of less than $75. Your policy can still require a receipt for every expense, which keeps your records consistent.

What happens if an employee doesn't return an excess advance?

IRS Publication 15 says that if "amounts in excess of substantiated expenses aren't returned within a reasonable period of time," the excess "is treated as paid under a nonaccountable plan," and it "is subject to income, social security, Medicare, and FUTA taxes".

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Guide to Employee Reimbursement Policies