Reimbursement

Reimbursement

Definition:
Reimbursement refers to the payment made by an employer or another party to cover expenses or losses incurred by an employee or other party. This practice is common in corporate settings and applies primarily to expenses such as travel, entertainment, or other business-related costs. Reimbursement can affect the employee’s adjusted gross income (AGI) for tax purposes, depending on the type of reimbursement plan used.

Examples of Reimbursement:

1. Travel Expenses: An employee traveling for business may incur costs for flights, hotels, and meals. The employer reimburses these expenses.
2. Entertainment Expenses: An employee might incur costs while entertaining clients or prospects, such as dining out. The employer covers these costs through reimbursement.
3. Equipment Purchase: An employee may buy necessary equipment or supplies for their work, and then get reimbursed by the employer.
4. Medical Reimbursement: Some health plans allow employees to be reimbursed for medical expenses not covered by insurance.

Frequently Asked Questions (FAQs):

1. What is a reimbursement? Reimbursement is a payment made by a company or organization to an employee or another party for expenses or losses they have incurred on behalf of the company.

2. What expenses can be reimbursed? Common reimbursable expenses include travel costs, meals, lodging, medical expenses, equipment purchases, and other related business expenses.

3. What is the difference between accountable and nonaccountable plans? An accountable plan requires employees to substantiate their expenses with receipts and return any excess reimbursement. Nonaccountable plans do not have these requirements and the reimbursements may be taxable.

4. Is reimbursement considered taxable income? If the reimbursement is part of an accountable plan, it is generally not considered taxable. If it is part of a nonaccountable plan, it may be considered taxable income.

5. What should be included in a reimbursement request? A reimbursement request should include a detailed breakdown of expenses, receipts, and a brief explanation of the expenses incurred.

Related Terms:

1. Adjusted Gross Income (AGI): The total gross income of an individual minus allowable deductions, important for determining taxable income.
2. Accountable Plan: A reimbursement or allowance arrangement that complies with IRS regulations, requiring employees to substantiate expenses and return any excess amounts.
3. Nonaccountable Plan: A reimbursement arrangement where employees are not required to substantiate expenses or return excess payments, which are included in their taxable income.

Online References:

1. IRS Publication 463 - Travel, Entertainment, Gift, and Car Expenses
2. Investopedia - Reimbursement Definition
3. Wikipedia - Reimbursement

Suggested Books for Further Studies:

1. “Accounting for Dummies” by John A. Tracy - A comprehensive guide to understanding accounting principles, including reimbursements.
2. “Financial Accounting” by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso - Delves into financial accounting concepts and practices.
3. “Practical Guide to Federal Employee Travel” by Steven R. Fuller - Covers rules and regulations related to travel reimbursements for federal employees.

Fundamentals of Reimbursement: Accounting Basics Quiz

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