Background: why this matters now
Remote work shifted routine business costs—home internet, office furniture, printers—from employers to employees. Employers often respond with reimbursements or flat stipends. Whether those payments are taxable affects payroll taxes, employee take-home pay, and employer reporting obligations. The IRS treats reimbursements differently depending on plan structure and documentation; that distinction determines whether amounts are excluded from wages or subject to income and employment taxes (IRS: Accountable and Nonaccountable Plans).
How reimbursements work: taxable vs. non-taxable (key distinction)
At a high level:
Accountable plan (non-taxable when rules are followed): Reimbursements are excluded from employee wages when they meet three IRS requirements: there is a business connection, expenses are substantiated (receipts or records) within a reasonable time, and any excess is returned within a reasonable time. See IRS guidance on accountable plans (external source: https://www.irs.gov/taxtopics/tc154).
Nonaccountable plan (taxable): If an employer’s reimbursement or allowance does not meet those rules—no documentation, no business purpose required, or excess not returned—the payments are wages. Employers must report them on Form W-2 and withhold income and employment taxes.
Common non-taxable categories under an accountable plan include equipment (laptop, monitor), business-use portion of home internet and phone, and mileage reimbursements substantiated to the employer. Taxable examples include flat monthly stipends not tied to documented expenses, or a single unreconciled lump-sum “work from home” allowance.
(See more on implementing compliant policies in our guide: Accountable vs. Non-accountable Plans for Employee Reimbursements.)
Real-world examples and tax treatment
Home internet stipend: If the employee provides receipts or an itemized bill showing the business use and the employer reimburses only that portion, it can be excluded from wages under an accountable plan. A flat $50 monthly stipend without substantiation is taxable.
Equipment purchase (laptop, monitor, chair): Reimbursement for business equipment is generally non-taxable if the employee shows the invoice and it’s for business use. If the employer purchases and retains ownership, it may be a business asset rather than compensation.
Cell phone: If the employer requires a phone and provides or reimburses the cost, business-use portions are non-taxable; purely personal use may create taxable fringe value unless de minimis.
Home office expenses (rent, utilities): Direct reimbursement for a proportionate share of rent or utilities is rarely used because of complexity. If offered, strict substantiation and an accountable plan are required to avoid wages. Note: employees cannot deduct unreimbursed business expenses on their federal return through at least 2025 if they are W-2 employees (TCJA suspension of miscellaneous itemized deductions) — so reimbursement policies matter more than ever.
Who is affected / eligible
Employers: Responsible for classifying plans, withholding/payroll reporting, and keeping records. Mistakes can cause payroll tax liabilities and penalties.
Employees: Affects take-home pay and tax reporting. Under an accountable plan, employees don’t report or pay taxes on reimbursements that are properly substantiated and returned when necessary.
Employees who are independent contractors follow different rules: reimbursed expenses are generally handled as business expenses on Schedule C, and the contractor should track and report them accordingly.
Implementing and documenting an accountable plan (professional tips)
In my practice advising employers, these elements reduce audit risk and simplify payroll:
- Written policy: Clearly state that reimbursements are handled under an accountable plan, identify eligible expenses, and outline substantiation procedures.
- Substantiation requirements: Require receipts, invoices, or itemized bills and a business purpose. Seek documentation within a reasonable timeframe (commonly 60 days) and require return of excess reimbursements within a reasonable period (commonly 120 days).
- Reimbursement workflow: Use expense management software that timestamps receipts and stores records centrally (examples: Concur, Expensify, Certify). This makes substantiation defensible.
- Distinguish stipends vs. reimbursements: If you want to avoid payroll processing, use an accountable reimbursement model rather than flat stipends. If you pay stipends, treat them as wages and withhold accordingly.
- Track personal use: For mixed-use items (cell phone, internet), require employees to estimate business percentage and provide supporting evidence periodically.
For a practical how-to, see our article: How to Implement an Employee Reimbursement Policy that Meets IRS Rules.
Quick comparison table: taxable vs. non-taxable (examples)
| Scenario | Accountable plan (non-taxable) | Nonaccountable plan (taxable) |
|---|---|---|
| Home internet business portion | Reimbursed when substantiated with bill/usage | Flat monthly stipend without receipts — taxable wages |
| Laptop purchased for employee business use | Reimbursed with invoice and business purpose — non-taxable | Lump-sum equipment allowance treated as wages if not substantiated |
| Mileage | Reimbursed at or below IRS standard rate with log — non-taxable | Flat monthly car allowance without logs — taxable |
| De minimis items (office snacks) | Small items can be non-taxable | Repeated flat payments for personal use — taxable |
Common mistakes and misconceptions
- Treating stipends as non-taxable without an accountable plan. Employers frequently pay flat “WFH stipends” and assume they’re tax-free. Without receipts and a business purpose, these are wages.
- Expecting employees to deduct unreimbursed business expenses. Most W-2 employees can’t deduct those expenses on federal returns through 2025 (see IRS Publication on miscellaneous deductions).
- Failing to report taxable reimbursements on Form W-2 and to withhold payroll taxes. This creates employer liabilities and potential penalties.
- Not returning excess reimbursements. If an employee receives more than substantiated expenses, timely return of the excess is required under an accountable plan.
Frequently asked questions
Q: Can an employer offer both stipends and accountable reimbursements?
A: Yes, but each must be treated according to its nature. Stipends that are not reimbursed with receipts are wages; accountable reimbursements are excludable when substantiated.
Q: What documentation should employees keep?
A: Itemized receipts, dates of purchase, business purpose, and a mileage log for vehicle use. Electronic copies are acceptable when stored reliably.
Q: Are small, infrequent reimbursements considered de minimis fringe benefits?
A: Some small items may qualify as de minimis and be excluded from wages (e.g., occasional snacks or minor office supplies). Regular, recurring payments for personal services generally do not qualify.
Compliance checklist for employers
- Adopt a written accountable plan.
- Define eligible expenses and substantiation timelines.
- Provide clear instructions for returning excess reimbursements.
- Integrate expense software or procedures for recordkeeping.
- Coordinate payroll to ensure taxable reimbursements are withheld and reported.
Professional disclaimer
This article provides general information about U.S. federal tax rules as of 2025 and is not personalized tax or legal advice. Employers and employees should consult a qualified tax advisor or employment lawyer to apply rules to specific situations. In my practice advising employers, I recommend documenting policies and consulting payroll advisors before changing reimbursement programs.
Authoritative sources and further reading
- IRS — Accountable and Nonaccountable Plans: https://www.irs.gov/taxtopics/tc154 (explains the three accountable-plan rules and reporting requirements).
- IRS Publication 463 (Travel, Gift, and Car Expenses) for substantiation practices and business-use guidance.
Internal resources on FinHelp.io
- Accountable vs. Non-accountable Plans for Employee Reimbursements (guide): https://finhelp.io/glossary/accountable-vs-non-accountable-plans-for-employee-reimbursements/
- Accountable Plan Rules (deep-dive): https://finhelp.io/glossary/accountable-plan-rules/
- How to Implement an Employee Reimbursement Policy that Meets IRS Rules: https://finhelp.io/glossary/how-to-implement-an-employee-reimbursement-policy-that-meets-irs-rules/
- Repairs to Employee Workstations Deduction (related topic): https://finhelp.io/glossary/repairs-to-employee-workstations-deduction/