Expense Reimbursements in the US: A Guide for Employers

When employees incur business expenses while working for their employer, they will naturally expect reimbursement of personal funds. 

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What they and their employer may not realize is that some reimbursements are actually taxable to the employee, if there is some type of non-business or income component to the expense payment.

In the US, employers are not required by federal law to reimburse employees for expenses, but it is customary to do so, and some states do require it.  Either way, most employees would not accept paying an employer’s business expenses out of pocket.  This guide will explain how reimbursements will be viewed by the IRS for tax purposes, so that your employees will know what to expect.

What types of expenses are reimbursable in the US?

There are two categories of employee expenses that may be reimbursed: taxable and non-taxable.  When a reimbursement is taxable, the amount is included in income on the monthly payroll for tax withholding.

Taxable expense reimbursement

  • Personal use mileage with a company-provided car
  • Performance related prizes or trips
  • Legal or accounting services

Non-taxable expense reimbursements

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Tim Burgess

Director, Shield GEO Services Ltd