How to Reimburse Employees for Travel Expenses

Does it feel like your workday gets bogged down with all the little administrative tasks on your To-Do list? Those things are important but can get in the way of the more important things if you don’t have good systems in place. For instance, do you know how to reimburse employees for travel expenses? If so, do you have an employee expense reimbursement policy in place?

Not having such a system in place can make reimbursing your employees more complicated than it needs to be. Today, you’ll learn the ins and outs of reimbursement, including legal and tax considerations. Plus, you’ll see why having a policy in place can make your life so much easier – and keep your employees happy.

How to Reimburse Employees for Travel Expenses – Your Employee Guide

Here’s what you need to know about how to reimburse employees for travel expenses, including information about employee expense reimbursement law.

Travel Expense Reimbursement – What Is It?

At times, employers will ask their employees to travel for work. Such a request might be part of the job, something they must do to complete the work involved in their job title. At other times, an employer might want to send their employees to a work conference for training reasons.

In these cases, if an employee uses their own cash, checks, or credit cards to pay for travel expenses, you are required to reimburse them for the money they’ve spent.

Employees are eligible for reimbursement if they pay for:

• Supplies
• Travel/transportation
• Meals and entertainment

Of course, this all depends upon the contract between you and your employees. If the contract doesn’t stipulate that you are required to pay reimbursements, then you aren’t required to do so. However, if the contract specifically states that the employee will be reimbursed, you’re legally required to do so.

What about the taxability of reimbursement costs? Here are the answers to some common questions about employee travel reimbursement and tax laws.

Are reimbursed expenses considered income?

As an employer or company manager, one question you’ll hear from employees is: Is travel reimbursement considered income?

While some employee benefits fall under the category of taxable income, reimbursed expenses do not fall into that category.

Expense reimbursement through payroll – what’s the proper protocol?

Typically, reimbursement of travel expenses will be taken care of by the payroll department. Expense reimbursement through payroll seems simple enough, but there is plenty of room for error. For example, if the reimbursement costs are lumped in with wages, then the reimbursement funds will likely be accidentally taxed.

Therefore, it’s essential to make sure your payroll department uses pay stubs that have a separate section for expense reimbursements.

What is the IRS’ expense reimbursement guidelines?

Certain expenses are tax-deductible. If an employee is reimbursed for travel expenses, they won’t be able to claim those expenses as deductions, but neither will they be taxed for the reimbursement they receive.

You, however, can deduct the reimbursement costs – if you have the appropriate documentation. For every expense reimbursed to the employee and deducted by you, there needs to be a receipt.

You can deduct expenses related to:

• Travel
• Gifts
• Transportation
• Non-entertainment related meals

What Expenses Should be Included for Short-Term and Long-Term Assignments?

What if you’re not sending your employees on a week-long conference trip? What if you give them an assignment that requires they travel for a year or longer? In these cases, you will need to reimburse them for certain expenses.

Short-term assignments are less than a year in duration. Anything longer is considered a long-term assignment.

Reimbursed travel expenses are not considered taxable, though other reimbursed expenses may be taxed.

For example, some employers pay moving expenses so their employees can relocate to a new city. If you’ve ever moved, you know that moving costs can add up quickly. It’s a nice perk for employees to have an employer who is willing to reimburse them for these expenses. Unfortunately, reimbursements for moving expenses are considered taxable income for your employees. It’s best to have your HR or payroll department warn them of this upfront so they can be prepared for it. 

Similarly, if a short-term assignment turns into a long-term assignment, any travel reimbursements made to your employees will then be considered taxable income.

How to Build and/or Update Your Travel Reimbursement Policy

To eliminate the risk of any bad blood between you and your employees, it’s essential to keep your travel reimbursement policy transparent.

Such a policy outlines your company’s rules for reimbursement, including:

• What expenses you’re willing to cover
• What expenses you won’t cover
• If reimbursements are based on employee levels
• If you’ll pay for expenses for your employee’s family members
• If you’ll offer “per diem” pay
• How employees will keep track of and report their expenses
• How quickly your payroll department will reimburse your employees for travel expenses.

Now That You Know How to Reimburse Employees for Travel Expenses, What’s Next?

Reading through this guide has shown you how to reimburse employees for travel expenses in a way that’s both legal and good for you and your employees. What should you do now?

Now’s the time to start implementing your employee expense reimbursement process to make it easy for employees to follow the policy and for management to track and approve all submitted reimbursement requests.

You can use Metatask process management app to quickly create and manage processes like travel requests or expenses reports. Metatask let you map any business process as a simple sequence of steps that needs to be taken, than add approvals and forms that need to be filled by employees.