travel expenses not reimbursed by employer

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What to Do If Your Employer Won’t Reimburse Business Expenses

At Smithey Law Group LLC , our attorneys are frontrunners in the employment law community and have represented employees in thousands of disputes. We have the experience and knowledge to help you recoup your business expenses and damages from your employer. 

When can I expect reimbursement from my employer for expenses?

Typically, your employer must reimburse you for necessary and reasonable expenses within three years of the expense being incurred.

Is a Business Expense Reimbursement Part of My Wages?

Plain and simple, your employer must pay you wages for your work. And how does the law define wages? Under Maryland law, wages include the following : 

• Your standard rate of pay (which must comply with the minimum wage laws), 
• Commissions,
• Fringe benefits, 
• Overtime pay, and
• Any other promised compensation. 

While business expenses are not listed above, federal law states that your employer must remit payment to you “free and clear” or unconditionally. Your employer’s payment to you is not free and clear if your work requires you to purchase materials or pay other costs for the benefit of your employer, and those costs bring your pay below minimum wage or infringe on your overtime entitlements. Those costs must be reimbursed. 

Expenses that are for the benefit of an employer and subject to reimbursement can include the costs of : 

• Purchasing materials requested explicitly by an employer; 
• Depreciation in value of a personal vehicle that an employee is obligated to use during working hours; 
• Mileage for trips an employer requires an employee to make during working hours; 
• Purchasing tools requested explicitly by an employer; 
• Buying gas used for trips an employer requires an employee to make during working hours; and 
• Other travel expenses. 

Please keep in mind that an employer’s obligation to compensate an employee for travel expenses does not include an employee’s travels to work before a shift starts or travels back home after a shift ends. Also, an employer doesn’t necessarily have to reimburse an employee for the exact amount of costs they incur. An employer has to pay for only a “reasonable approximation of expenses” its employee collects on its behalf. 

In addition to its obligations under federal and state wage laws, your employer also has obligations to you under any employment agreement you have. If a business, agency, or organization promises to pay you a certain wage for your work and also requires you to make purchases that reduce your wages, a failure to reimburse you might be a breach of contract. Your employer’s refusal to cover your business expenses could subject it to a breach of contract lawsuit , regardless of whether the expenses reduce your pay to less than minimum wage or overtime entitlements. 

Taking Legal Action Against an Employer that Won’t Reimburse Business Expenses

Unfortunately, some employers put their employees in a position where they have to fight for the compensation they earned. If an employer requires you to use your money or personal belongings to benefit the employer’s business without recompense, you are not receiving your full wages. Employees who do not receive their full wages can file wage complaints with the government or lawsuits in court. 

The Employment Standards Service (ESS) of the Maryland Department of Labor and the Wage and Hour Division (WHD) of the U.S. Department of Labor handle wage complaints against employers that fail to reimburse their employees . The ESS and WHD investigate complaints, review evidence, and conduct interviews and conferences in an effort to resolve complaints. And if the WHD or ESS is unable to adjudicate a wage complaint, an employee still has the option of suing their employer in court. 

If their complaint or lawsuit is successful, an employee can win remedies such as : 

• Liquidated damages, 
• Treble damages, and 
• Attorney fees.

An employer that willfully fails to reimburse an employee could also be subject to civil and criminal penalties. 

There are many steps to initiating and maintaining a legal complaint against your employer for improper payment of wages. As soon as a wage issue arises at your workplace, you should speak to an experienced wage and hour attorney to help ensure that you take the right course of action to get the compensation your employer owes you. 

Deadline for Filing a Complaint or Lawsuit

Not only do you need to file your wage complaint or lawsuit in the right place, but you also need to file your legal action on time. You must file your complaint with the WHD within two years if your employer’s failure to reimburse you is not willful. And you must file with the WHD within three years if your employer’s actions are willful. Under Maryland law , you have two years to file a complaint with the ESS and three years to file a lawsuit in court.  

Let Smithey Law Group Help You

You worked hard on your own to earn money at work; why should you have to fight alone to recover that money from your employer? The answer is simple: You don’t have to fight alone to recover your wages, nor should you. At Smithey Law Group , we focus exclusively on representing individuals in employment disputes. We are experienced and knowledgeable regarding how to resolve the employment law challenges Maryland residents face. We are also award-winning leaders in the employment law community. 

If you are searching for an advocate who gets results and can successfully litigate, negotiate, and educate on matters regarding employment, speak to us. We are sought-after professionals who can maximize your recovery and protect your rights. You can call us at 410-881-8190 or contact us online whenever you need help. 

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Tax issues arise when employers pay employee business travel expenses

Employers must determine proper tax treatment for employees.

Most employers pay or reimburse their employees’ expenses when traveling for business. Generally, expenses for transportation, meals, lodging and incidental expenses can be paid or reimbursed by the employer tax-free if the employee is on a short-term trip. However, the tax rules become more complex when the travel is of a longer duration. Sometimes the travel expenses paid or reimbursed by the employer must be treated as taxable compensation to the employee subject to Form W-2 reporting and payroll taxes.

The purpose of this article is to address some of the more common travel arrangements which can result in taxable income to employees for federal tax purposes. Although business travel can also raise state tax issues, those issues are beyond the scope of this article. This article is intended to be only a general overview as the tax consequences to an employee for a given travel arrangement depend on the facts and circumstances of that arrangement.

In the discussion below, it is assumed that all travel expenses are ordinary and necessary and incurred by an employee (or a partner in a partnership) while traveling away from home overnight for the employer’s business. In addition, it is assumed that the expenses are properly substantiated so that the employer knows (1) who incurred the expense; (2) where, when, why and for whom the expense was incurred, and (3) the dollar amount. Employers need to collect this information within a reasonable period of time after an expense is incurred, typically within 60 days.

Certain meal and lodging expenses can fall within a simplified substantiation process called the “per diem” rules (although even these expenses must still meet some of the substantiation requirements). The per diem rules are outside the scope of this article.

One of the key building blocks for the treatment of employee travel expenses is the location of the employee’s “tax home.”  Under IRS and court holdings, an employee’s tax home is the employee’s regular place of work, not the employee’s personal residence or family home. Usually the tax home includes the entire city or area in which the regular workplace is located. Generally, only expenses paid or reimbursed by an employer for an employee’s travel away from an employee’s tax home are eligible for favorable tax treatment as business travel expenses.

Travel to a regular workplace

Usually expenses incurred for travel between the employee’s residence and the employee’s regular workplace (tax home) are personal commuting expenses, not business travel. If these expenses are paid or reimbursed by the employer, they are taxable compensation to the employee. This is the case even when an employee is traveling a long distance between the employee’s residence and workplace, such as when an employee takes a new job in a different city. According to the IRS, if it is the employee’s choice to live away from his or her regular workplace (tax home), then the travel expenses between the two locations which are paid or reimbursed by the employer are taxable income to the employee.  

Example: Bob’s personal residence is in Chicago, but his regular workplace is in Atlanta. Bob’s employer reimburses him for an apartment in Atlanta plus his transportation expenses between the two cities. Since Atlanta is Bob’s tax home, these travel expenses are personal commuting expenses and the employer’s reimbursement of the expenses is taxable compensation to Bob.

Travel to two regular workplaces

Sometimes an employer requires an employee to consistently work in two business locations because of the needs of the employer’s business.  Factors such as where the employee spends the most time, has the most business activity, and earns the highest income determine which is the primary location with the other being the secondary location. The employee’s residence may be in either the primary or the secondary location. In general, the IRS holds that transportation costs between the two locations can be paid or reimbursed by the employer tax-free. In addition, lodging and meals at the location which is away from the employee’s residence can generally be paid or reimbursed tax-free.

Example:  Caroline lives in Location A and works at her company headquarters there. Her employer opens a new store in Location B and asks her to handle the day-to-day operations for two years while the store is getting up to speed. But Caroline is also needed at the headquarters so her employer asks her to spend two days a week at the headquarters in Location A and three days a week at the store in Location B.  Because the work at each location is driven by a business need of Caroline’s employer, she is treated as having primary and secondary work locations and is not treated as commuting between the two locations. Caroline’s travel between the two locations and her meals and lodging at Location B can be reimbursed tax-free by her employer.

As a practical matter, the employer must carefully consider and be able to support the business need for the employee to routinely go back and forth between two business locations. In cases involving two business locations, the courts have looked at time spent, business conducted and income generated in each location.  Merely having an employee “sign in” or “touch down” at a business location near his or her residence is unlikely to satisfy the requirements for having two regular workplaces. Instead, the IRS would likely consider the employee as having only one regular workplace with employer-paid travel between the employee’s residence and the regular workplace being taxable commuting expenses.

Travel when a residence is a regular workplace

In some cases an employer hires an employee to work generally, or only, from the employee’s home, as he or she is not physically needed at an employer location.  If the employer requires the employee to work just from his or her residence on a regular basis, does not require or expect the employee to travel to another office on a regular basis, and does not provide office space for the employee elsewhere, then the residence can be the tax home since it is the regular workplace for the employee.  When the employee does need to travel away from his or her residence (tax home), the temporary travel expenses can be paid or reimbursed by the employer on a tax-free basis.

Example: Jason is a computer programmer and works out of his home in Indianapolis for an employer in Seattle. He periodically travels to Seattle for meetings with his team. Since Jason has no assigned office space in Seattle and is expected by his employer to work from his home, Jason’s travel expenses to Seattle can be reimbursed by his employer on a tax-free basis.  

Travel to a temporary workplace

Sometimes an employer temporarily assigns an employee to work in a location that is far from the employee’s regular workplace, with the expectation that the employee will return to his or her regular workplace at the end of the assignment. In this event, the key question is whether the employee’s tax home moves to the temporary workplace.  If the tax home moves to the temporary workplace, the travel expenses between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are taxable compensation to the employee because they are personal commuting expenses rather than business travel expenses. Whether or not the employee’s tax home moves to the temporary workplace depends on the duration of the assignment and the expecations of the parties.

• One year or less . If the assignment is expected to last (and actually does last) one year or less, the employee’s tax home generally does not move to the temporary workplace. Therefore, travel expenses between the employee’s residence and temporary workplace that are paid or reimbursed by the employer are typically tax-free to the employee as business travel.

Example: Janet lives and works in Denver but is assigned by her employer to work in San Francisco for 10 months. She returns to Denver after the 10-month assignment. Janet’s travel expenses associated with her assignment in San Francisco that are reimbursed by her employer are not taxable income to her as they are considered temporary business travel and not personal commuting expenses.

• More than one year or indefinite .  If the assignment is expected to last more than one year or is for an indefinite period of time, the employee’s tax home generally moves to the temporary workplace. This is the case even if the assignment ends early and actually lasts one year or less. Consequently, travel expenses between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are taxable compensation to the employee as personal commuting expenses.

Example: Chris lives and works in Dallas but is assigned by his employer to work in Oklahoma City for 15 months before returning to Dallas. Chris’s travel expenses associated with his assignment to Oklahoma City that are reimbursed by his employer are taxable income to him as personal commuting expenses.

• One year or less then extended to more than one year . Sometimes an assignment is intended to be for one year or less, but then is extended to more than one year. According to the IRS, the tax home moves from the regular workplace to the temporary workplace at the time of the extension. Therefore, travel expenses incurred between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are non-taxable business travel expenses until the time of the extension, but are taxable compensation as personal commuting expenses after the extension.

Example:  Beth’s employer assigns her to a temporary workplace in January with a realistic expectation that she will return to her regular workplace in September.  However, in August, it is clear that the project will take more time so Beth’s assignment is extended to the following March. Once Beth’s employer knows, or has a realistic expectation, that Beth’s work at the temporary location will be for more than one year, changes are needed to the tax treatment of Beth’s travel expenses. Only the travel expenses incurred prior to the extension in August can be reimbursed tax-free; travel expenses incurred and reimbursed after the extension are taxable compensation.

When an employee’s residence and regular workplace are in the same geographic location and the employee is away on a temporary assignment, the employee will often return to the residence for weekends, holidays, etc. Expenses associated with travel while enroute to and from the residence can be paid or reimbursed by an employer tax-free, but only up to the amount that the employee would have incurred if the employee had remained at the temporary workplace instead of traveling home.

Travel to a temporary workplace – Special situations

In order for an employer to treat its payment or reimbursement of travel expenses as tax-free rather than as taxable compensation, the employee’s ties to the regular workplace must be maintained. The employee must expect to return to the regular workplace after the assignment, and actually work in the regular workplace long enough or regularly enough that it remains the employee’s tax home. Special situations arise when an employee’s assignment includes recurring travel to a temporary workplace, continuous temporary workplaces, and breaks in assignments to temporary workplaces.

• Recurring travel to a temporary workplace . Although the IRS has not published formal guidance which can be relied on, it has addressed situations where an employee has a regular workplace and a temporary workplace to which the employee expects to travel over more than one year, but only on a sporadic and infrequent basis.  Under the IRS guidance, if an employee’s travel to a temporary workplace is (1) sporadic and infrequent, and (2) does not exceed 35 business days for the year, the travel is temporary even though it occurs in more than one year.  Consequently, the expenses can be paid or reimbursed by an employer on a tax-free basis as temporary business travel.

Example: Stephanie works in Location A but will travel on an as-needed basis to Location B over the next three years. If Stephanie’s travel to Location B is infrequent and sporadic and does not exceed 35 business days a year, her travel to Location B each year can be reimbursed by her employer on a tax-free basis as temporary business travel.

• Continuous temporary workplaces .  Sometimes an employee does not have a regular workplace but instead has a series of temporary workplaces. If the employee’s residence cannot qualify as his or her tax home under a three-factor test developed by the IRS, the employee is considered to have no tax home and is “itinerant” for travel reimbursement purposes. In this case, travel expenses paid by the employer generally would be taxable income to the employee.

Example: Patrick originally worked in Location A, but his employer sends him to Location B for eleven months, then assigns Patrick to Location C for another eight months. Patrick will be sent to Location D after Location C with no expectation of returning to Location A. Patrick does not maintain a residence in Location A. Travel expenses paid to Patrick by his employer will likely be taxable income to him.    

• Breaks between temporary workplaces . In an internal memorandum, the IRS addresses the outcome when an employee has a break in assignments to temporary workplaces. When applying the one-year rule, the IRS notes that a break of three weeks or less is not enough to prevent aggregation of the assignments, but a break of at least seven months would be. Some companies choose to not aggregate assignments when the breaks are shorter than seven months but are considerably longer than three weeks, given the lack of substantive guidance from the IRS on this issue.

Example: Don’s regular workplace is in Location A. Don’s employer sends him to Location B for ten months, back to Location A for eight months, and then to Location B again for four months. Although Don’s time in Location B totals 14 months, since the assignments there are separated by a break of at least seven months, they are not aggregated for purposes of applying the one-year rule. Consequently, the travel expenses associated with each separate assignment to Location B can be reimbursed by the employer on a tax-free basis as temporary business travel since each assignment lasted less than a year.

  Conclusion

The tax rules regarding business travel are complex and the tax treatment can vary based on the facts of a situation. Employers must carefully analyze business travel arrangements to determine whether travel expenses that they pay or reimburse are taxable or nontaxable to employees.

RSM contributors

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Everything You Need to Know About the Business Travel Tax Deduction

Justin is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS. He loves helping freelancers and small business owners save on taxes. He is also an attorney and works part-time with the Keeper Tax team.

You don’t have to fly first class and stay at a fancy hotel to claim travel expense tax deductions. Conferences, worksite visits, and even a change of scenery can (sometimes) qualify as business travel.

What counts as business travel?

The IRS does have a few simple guidelines for determining what counts as business travel. Your trip has to be:

• Mostly business
• An “ordinary and necessary” expense
• Someplace far away from your “tax home”

What counts as "mostly business"?

The IRS will measure your time away in days. If you spend more days doing business activities than not, your trip is considered "mostly business". Your travel days are counted as work days.

Special rules for traveling abroad

If you are traveling abroad for business purposes, you trip counts as " entirely for business " as long as you spend less than 25% of your time on personal activities (like vacationing). Your travel days count as work days.

So say you you head off to Zurich for nine days. You've got a seven-day run of conference talks, client meetings, and the travel it takes to get you there. You then tack on two days skiing on the nearby slopes.

Good news: Your trip still counts as "entirely for business." That's because two out of nine days is less than 25%.

What is an “ordinary and necessary” expense?

“Ordinary and necessary” means that the trip:

• Makes sense given your industry, and
• Was taken for the purpose of carrying out business activities

If you have a choice between two conferences — one in your hometown, and one in London — the British one wouldn’t be an ordinary and necessary expense.

What is your tax home?

A taxpayer can deduct travel expenses anytime you are traveling away from home but depending on where you work the IRS definition of “home” can get complicated.

Your tax home is often — but not always — where you live with your family (what the IRS calls your "family home"). When it comes to defining it, there are two factors to consider:

• What's your main place of business, and
• How large is your tax home

What's your main place of business?

If your main place of business is somewhere other than your family home, your tax home will be the former — where you work, not where your family lives.

For example, say you:

• Live with your family in Chicago, but
• Work in Milwaukee during the week (where you stay in hotels and eat in restaurants)

Then your tax home is Milwaukee. That's your main place of business, even if you travel back to your family home every weekend.

How large is your tax home?

In most cases, your tax home is the entire city or general area where your main place of business is located.

The “entire city” is easy to define but “general area” gets a bit tricker. For example, if you live in a rural area, then your general area may span several counties during a regular work week.

Rules for business travel

Want to check if your trip is tax-deductible? Make sure it follows these rules set by the IRS.

1. Your trip should take you away from your home base

A good rule of thumb is 100 miles. That’s about a two hour drive, or any kind of plane ride. To be able to claim all the possible travel deductions, your trip should require you to sleep somewhere that isn’t your home.

2. You should be working regular hours

In general, that means eight hours a day of work-related activity.

It’s fine to take personal time in the evenings, and you can still take weekends off. But you can’t take a half-hour call from Disneyland and call it a business trip.

Here's an example. Let’s say you’re a real estate agent living in Chicago. You travel to an industry conference in Las Vegas. You go to the conference during the day, go out in the evenings, and then stay the weekend. That’s a business trip!

3. The trip should last less than a year

Once you’ve been somewhere for over a year, you’re essentially living there. However, traveling for six months at a time is fine!

For example, say you’re a freelancer on Upwork, living in Seattle. You go down to stay with your sister in San Diego for the winter to expand your client network, and you work regular hours while you’re there. That counts as business travel.

What about digital nomads?

With the rise of remote-first workplaces, many freelancers choose to take their work with them as they travel the globe. There are a couple of requirements these expats have to meet if they want to write off travel costs.

Requirement #1: A tax home

Digital nomads have to be able to claim a particular foreign city as a tax home if they want to write off any travel expenses. You don't have to be there all the time — but it should be your professional home base when you're abroad.

For example, say you've rent a room or a studio apartment in Prague for the year. You regularly call clients and finish projects from there. You still travel a lot, for both work and play. But Prague is your tax home, so you can write off travel expenses.

Requirement #2: Some work-related reason for traveling

As long as you've got a tax home and some work-related reason for traveling, these excursion count as business trips. Plausible reasons include meeting with local clients, or attending a local conference and then extending your stay.

However, if you’re a freelance software developer working from Thailand because you like the weather, that unfortunately doesn't count as business travel.

The travel expenses you can write off

As a rule of thumb, all travel-related expenses on a business trip are tax-deductible. You can also claim meals while traveling, but be careful with entertainment expenses (like going out for drinks!).

Here are some common travel-related write-offs you can take.

🛫 All transportation

Any transportation costs are a travel tax deduction. This includes traveling by airplane, train, bus, or car. Baggage fees are deductible, and so are Uber rides to and from the airport.

Just remember: if a client is comping your airfare, or if you booked your ticket with frequent flier miles, then it isn't deductible since your cost was $0.

If you rent a car to go on a business trip, that rental is tax-deductible. If you drive your own vehicle, you can either take actual costs or use the standard mileage deduction. There's more info on that in our guide to deducting car expenses .

Hotels, motels, Airbnb stays, sublets on Craigslist, even reimbursing a friend for crashing on their couch: all of these are tax-deductible lodging expenses.

🥡 Meals while traveling

If your trip has you staying overnight — or even crashing somewhere for a few hours before you can head back — you can write off food expenses. Grabbing a burger alone or a coffee at your airport terminal counts! Even groceries and takeout are tax-deductible.

One important thing to keep in mind: You can usually deduct 50% of your meal costs. For 2021 and 2022, meals you get at restaurants are 100% tax-deductible. Go to the grocery store, though, and you’re limited to the usual 50%.

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🌐 Wi-Fi and communications

Wi-Fi — on a plane or at your hotel — is completely deductible when you’re traveling for work. This also goes for other communication expenses, like hotspots and international calls.

If you need to ship things as part of your trip — think conference booth materials or extra clothes — those expenses are also tax-deductible.

👔 Dry cleaning

Need to look your best on the trip? You can write off related expenses, like laundry charges.

{write_off_block}

Travel expenses you can't deduct

Some travel costs may seem like no-brainers, but they're not actually tax-deductible. Here are a couple of common ones to watch our for.

The cost of bringing your child or spouse

If you bring your child or spouse on a business trip, your travel expense deductions get a little trickier. In general, the cost of bring other people on a business trip is considered personal expense — which means it's not deductible.

You can only deduct travel expenses if your child or spouse:

• Is an employee,
• Has a bona fide business purpose for traveling with you, and
• Would otherwise be allowed to deduct the travel expense on their own

Some hotel bill charges

Staying in a hotel may be required for travel purposes. That's why the room charge and taxes are deductible.

Some additional charges, though, won't qualify. Here are some examples of fees that aren't tax-deductible:

• Gym or fitness center fees
• Movie rental fees
• Game rental fees

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Where to claim travel expenses when filing your taxes

If you are self-employed, you will claim all your income tax deduction on the Schedule C. This is part of the Form 1040 that self-employed people complete ever year.

What happens if your business deductions are disallowed?

If the IRS challenges your business deduction and they are disallowed, there are potential penalties. This can happen if:

• The deduction was not legitimate and shouldn't have been claimed in the first place, or
• The deduction was legitimate, but you don't have the documentation to support it

When does the penalty come into play?

The 20% penalty is not automatic. It only applies if it allowed you to pay substantially less taxes than you normally would. In most cases, the IRS considers “substantially less” to mean you paid at least 10% less.

In practice, you would only reach this 10% threshold if the IRS disqualified a significant number of your travel deductions.

How much is the penalty?

The penalty is normally 20% of the difference between what you should have paid and what you actually paid. You also have to make up the original difference.

In total, this means you will be paying 120% of your original tax obligation: your original obligation, plus 20% penalty.

Justin W. Jones, EA, JD

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What tax write-offs can I claim?

At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email [email protected] with your questions.

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• EXPENSES & DEDUCTIONS

Proving employee business expense deductions

• Individual Income Taxation

Editor: Mark G. Cook, CPA, CGMA

Prior to the passage of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115 - 97 , taxpayers were allowed to deduct unreimbursed employee business expenses as miscellaneous itemized deductions, subject to Sec. 67's 2% floor on miscellaneous itemized deductions and Sec. 68's overall limitation on itemized deductions, on Schedule A, Itemized Deductions , of Form 1040, U.S. Individual Income Tax Return . The deduction was disallowed for the years 2018 to 2025 by the enactment in the TCJA of Sec. 67(g), which suspends the allowance of miscellaneous itemized deductions. Nonetheless, because unreimbursed employee business expenses will be deductible again in 2026, and court cases involving disputes between the IRS and taxpayers over their deduction on tax returns for years before 2018 continue to make their way through the courts, knowledge of the details of the unreimbursed employee business expense deduction remains important.

Employee business expense deduction

To get started, what is a deductible unreimbursed employee business expense? Per Sec. 162(a), there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business. Performing services as an employee constitutes a trade or business (see, e.g., Primuth , 54 T.C. 374 (1970)). Thus, with respect to employee business expenses, a deduction under Sec. 162(a) will be allowed for an unreimbursed expense that is:

• Paid or incurred during an employee's tax year;
• For carrying on his or her trade or business of being an employee; and
• Ordinary and necessary.

An expense is ordinary if it is common and accepted in the taxpayer's trade, business, or profession. An expense is necessary if it is appropriate and helpful to the taxpayer's business; it does not have to be required to be considered necessary.

Employer reimbursements

To prevent a taxpayer from obtaining a double benefit, only unreimbursed business expenses are deductible. Also, business expenses are not "necessary" if reimbursement is possible ( Podems , 24 T.C. 21 (1955)). Thus, if an employee incurs an expense that he or she has a right to reimbursement for under an expense reimbursement plan of his or her employer, but the employee fails to obtain reimbursement for the expense, the employee cannot take a Sec. 162(a) deduction for the expense.

This is true regardless of why an employee does not seek reimbursement for a business expense incurred on behalf of his or her employer. The Ninth Circuit held in Orvis , 788 F.2d 1406 (9th Cir. 1986), that a taxpayer's lack of knowledge that his employer had a policy of reimbursing such expenses was not relevant to whether he could take a deduction for the expenses on his personal return.

The burden of proof

Should the tax return be audited or a notice of deficiency be received, the taxpayer generally has the burden of proof. However, the burden of proof switches to the IRS if an individual taxpayer produces credible evidence in support of an expense, has complied with the substantiation requirements for the expense, has maintained all required records for the expense, and has cooperated with reasonable requests by the IRS for witnesses, information, documents, meetings, and interviews regarding the expense.

Credible evidence is evidence that, after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted (without regard to the judicial presumption of IRS correctness). The burden is not shifted if the taxpayer presents incredible or implausible evidence, even if that evidence is not controverted.

Substantiation requirements

An employee must be able to substantiate a deduction for an unreimbursed business expense by keeping (and producing for the IRS, if requested) adequate records. In general, the Code does not require the records to be in a specific form. However, under Sec. 274(d), specific proof is necessary to substantiate deductions for away - from - home travel and business gift expenses, and deductions related to listed property. A taxpayer must substantiate these expenses by adequate records or by sufficient evidence corroborating the taxpayer's own statement showing:

(A) the amount of such expense or other item, (B) the time and place of the travel or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of the person receiving the benefit.

Temp. Regs. Sec. 1. 274 - 5T (c)(2) in general defines "adequate records" as an account book, diary, log, statement of expense, trip sheets, or similar record, and documentary evidence that, in combination, are sufficient to establish each of the required elements of an expense.

Temp. Regs. Sec. 1. 274 - 5T (c)(3) defines "sufficient evidence corroborating the taxpayer's own statement" as the taxpayer's own statement, whether written or oral, containing specific information in detail about the required element of an expense and other corroborative evidence sufficient to establish that element. However, the Tax Court has routinely held that it is not required to accept a taxpayer's self - serving testimony without objective, corroborating evidence.

The taxpayer must substantiate the required elements for every Sec. 274(d) expense. Because Sec. 274(d) overrides the Cohan rule ( Cohan , 39 F.2d 540 (1930)), courts cannot estimate the amount of the taxpayer's expenses.

Temp. Regs. Sec. 1. 274 - 5T (c)(5) offers an exception to the adequate - records rule if the loss of records is due to circumstances beyond the taxpayer's control (e.g., a natural disaster). In this circumstance, the taxpayer has the right to substantiate his or her deductions through reasonable reconstruction of expenses.

If, as scheduled, unreimbursed employee business expenses again become deductible, employees should understand their employer's policy about business expense reimbursements to avoid denial for business expense deductions. If the employer's policy is unclear, the taxpayer should attempt to receive a reimbursement and document the results as evidence. It is important for taxpayers to keep a good record of the business expenses and make sure it is detailed enough to show that the expenses were incurred or paid during the tax year. For deductions for travel expenses, gifts, and deductions related to listed properties, taxpayers must ensure that they can substantiate the deductions under the strict standards in Sec. 274(d).

Editor Notes

Mark G. Cook , CPA, CGMA, MBA, is the lead tax partner with SingerLewak LLP in Irvine, Calif.

For additional information about these items, contact Mr. Cook at 949-623-0478 or [email protected] .

Contributors are members of SingerLewak LLP.

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This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.

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How Do Business Travel Expenses Work?

Employers Pay for Company Business Travel in Several Ways

• Employees on Long-Term Assignments
• Employers Pay for Travel Expenses?
• Know Your Travel Expense Policies
• Using Travel As an Employee Incentive

Travel expenses are expenditures that an employee makes while traveling on company business. Company business can include conferences, exhibitions, business meetings, client and customer meetings, job fairs, training sessions, and sales calls, for example.

Expenses can include lodging, personal car mileage reimbursement , flights, ground transportation, tips to bellhops, meals, tips to waiters, room service, and other incidental expenses an employee might experience while on the road.

Expenditures that an organization will reimburse are found in the company’s business travel policy. Become familiar with your company’s policy because expenses, as varied as dry cleaning and gym membership, can be covered for employees on extended trips in addition to the expected travel costs, housing, and meals.

Travel Expenditures for Employees on Long-Term Assignments

When using long-term housing facilities for traveling employees, many employers also supply opportunities for the employee's family to visit when the employee is traveling extensively on business. When an employee is assigned to another company location on a temporary basis, employers will sometimes pay for the family of the employee to visit at prescribed time intervals. This keeps the burden of remote work from affecting family relationships adversely.

Employers seek to provide options of value for employees who are away from home and family for extended periods of time. You need to take advantage of any travel privileges that your employer offers to build employee morale and dedication.

Client entertainment at conferences, on sales calls, and on-site visits is another reimbursable expense, but know your company’s policies so you don’t exceed the limits that are placed on entertainment costs. For example, companies frequently place a cap on what you can spend on taking a client to dinner.

Know also your company's policy on the awarding of airline miles credit. It varies. Some companies allow employees to accrue airline travel miles that they then can use for personal family travel. Others accrue a bank of travel miles that they use to cover additional employee business travel. Again, knowing your company's policies is crucial.

How Do Employers Pay for Employee Travel Expenses?

Typically, organizations pay employee travel expenses in these three ways.

Company credit cards

Credit cards are issued to employees who must travel frequently for business. Employees may charge most of the expenses they incur on a business trip to the company credit card. For reimbursement of incidentals such as tips and fast food, employees will need to fill out an expense report when they return from their trip.

Charge cards are convenient for employees as they do not have to come up with the cash to pay for business expenses prior to reimbursement. Become knowledgeable about your company's policies, though; you may still need to turn in receipts and other supporting documentation even when you charge these expenses to a credit card.

Organizations without employee company credit cards require employees to fill out an expense reimbursement report for each expenditure while the employee is on the road. They generally require receipts and some level of justification for each expense.

Only rarely would an organization ask employees to pay for the big-ticket items such as airfare and seek reimbursement later. A company purchase order or company credit card will pay for large expenses upfront. But employees are often required to pay cash out-of-pocket for day-to-day travel expenses that are later reimbursed.

A per diem is a daily allowance of a certain amount of money that an employee is given to cover all expenses. The employee is responsible for making sound travel expense choices within the parameters of the amount of money that he or she is allotted daily.

Some companies pay directly for transportation and housing but give traveling employees a per diem for all other expenses including meals and ground transportation. Employees have been known to underspend on expenses to keep the extra cash from the per diem. Companies generally allow this.

Know Your Employer's Travel Expense Policies

Employees who travel for business are advised to stay up-to-date on company travel policies and costs covered for reimbursement. Expenses that fall outside of the policies are generally not reimbursed or covered.

Receipts are required by most companies except for those that pay a per diem. Your company also likely has a form that they expect employees to use for turning in travel expenses.

To stay on top of reimbursable expenses, employees are often given a deadline by which they need to file an expense report and turn in applicable receipts. The finance department will have guidelines that help it stay current. 

If you have questions about what constitutes appropriate travel expenses in your organization, check with your manager and the Human Resources department. You don't want to spend the money and receive a surprise later.

Employers Are Using Travel As an Employee Incentive

Some employers have started to use travel as an employee incentive. When employees are rewarded with travel by their company for meeting a goal, the incentive travel will increase both employee loyalty and workplace engagement.

Tax Resources for Accountants and Small Businesses (U.S.)

• Expense Reimbursements / IRS / Meals and Incidental Expenses / Mileage / Payroll / Per Diem Rates / Small business
• Complete Guide to Reimbursing Employees for Travel Expenses

Published September 2, 2020 · Updated April 21, 2021

When an employee travels away from the office and incurs expenses, the company should reimburse them. Whether travelling across the world or just driving their car to a client’s location, getting the reimbursement right isn’t hard.

Keep reading to learn how to make proper employee reimbursements.

Accountable Plans

You’ll first need to decide if you will implement an accountable or nonaccountable plan. This is just as it sounds; either you’ll have employees be accountable for business expense reimbursements or not.

All businesses should have an expense reimbursement plan in writing. This includes corporations, sole proprietors, the self-employed, and non-profits. Non-profits should be extremely careful when reimbursing disqualified persons because nonaccountable plan reimbursements not properly approved or recorded can cause significant tax exposure to the charitable organization.

An accountable plan must follow the IRS guidelines for expense reimbursement. To qualify, the following rules must be met:

• Expenses must be for business purposes.
• Expenses must be adequately reported to the company in reasonable time.
• Any excess reimbursement or allowance must be returned in a reasonable amount of time.

Any expense that doesn’t meet these three criteria is considered a reimbursement under a nonaccountable plan.

This distinction between these two types of plans is important because accountable plan reimbursements are not taxable to the employee, whereas nonaccountable plans are taxable.

Business Purpose

Expenses incurred as an employee while completing work for an employer have a business purpose. Examples include things like registration fees for a conference, taxi rides to the airport for a business trip, or meals while away on a business trip.

If however, an employer reimburses an employee for dinner when the employee works late, this does not qualify as a business purpose. This reimbursement would be taxable to the employee because it was made under a nonaccountable plan.

Reporting in a Reasonable Time

While what is considered a reasonable amount of time is subjective, the general rule is that all reimbursable expenses must be submitted within 60 days of when they were incurred.

Adequate reporting involves providing a record, like an expense report, of all expenses incurred and providing evidence, like receipts, to support the expenses.

Excess Reimbursement

If an employee receives a travel advance to cover travel expenses but spends less than the advance, the difference is an excess reimbursement and must be returned to the employer to not be taxable. If the excess isn’t returned in a reasonable amount of time, it’s taxable.

A reasonable period of time in this instance is generally deemed to be within 120 days of when the expense was incurred.

With a travel advance, employees should submit an expense report and receipts to substantiate all expenses.

Mileage and Business Use of Personal Vehicle

When an employee uses their personal vehicle for company business, you’ll need to reimburse them. You have three options.

• Standard mileage rate
• Actual costs
• Monthly allowance

Standard Mileage Rate

If you use the standard mileage rate, it is 57.5 cents per mile for 2020.

You can pay more, but the IRS’ safe-harbor threshold of 57.5 cents per mile will allow you a tax deduction without having to substantiate the rate.

Note that the IRS typically updates rates in December. So, you can expect to see the 2021 rate announced in December 2020. IRS 2021 Mileage Rates are here.

IRS Standard Mileage Rates 2020

Actual Costs

Instead of using the standard rate, you can reimburse employees for actual expenses.

The employee will sum up all the costs of owning the vehicle including everything from fuel, maintenance, tolls, registration, and insurance. And based upon the percentage of business miles driven, that portion of the total actual costs is reimbursed.

Monthly Allowance

Using the monthly allowance method is relatively easy. Each month you provide a set dollar amount to the employee.

If you require the employee to provide a mileage log at the end of the month, this will determine if any part of the allowance is taxable. If no mileage log is required, the entire allowance is taxable under an unaccountable plan.

If a mileage log is provided and the employee drove less than expected, they should return the excess allowance within 30 days. If they don’t, the excess becomes taxable to them.

An employee’s commute from their home to their normal place of business is not a reimbursable expense. Any business miles driven in excess of the commute miles is reimbursable.

For example, an employee’s normal round-trip commute is 20 miles. On Fridays, the employee works on-site at a client’s office that is 30 miles away from the employee’s home. So, the employee drives 60 miles round-trip on Fridays. Since this is longer than he would drive if he commuted to the office, you’ll want to reimburse the employee for 40 miles (60 miles – 20 miles).

Mileage Logs

Employees should keep mileage logs when using a personal vehicle for business use. The log should include:

• Employee’s name
• Description of vehicle
• Date of business use
• Purpose of business use
• Starting mileage on odometer
• Ending mileage on odometer
• Approval authorization

Here’s an example of a mileage log using Microsoft Excel.

Mileage log and expense report – employee reimbursement

Note that in this example, the employee drove from the office to a client and then back to the office. Therefore, there is no need to deduct commuting mileage.

But suppose, like in our example from above, that on Fridays the employee drives from home to the client’s location and back home. His mileage log would look like this:

Mileage log and expense report example – employee reimbursement

But what if in this example, the drive to the client’s office from the employee’s home was shorter than his regular commute? In this case there is nothing to reimburse and the employee enjoys the benefit of less driving.

What would happen if this same employee didn’t normally work on Fridays or he always worked from home on Fridays? Then the entire drive to the client’s office would be reimbursable since the employee’s normal work schedule didn’t require him to commute on Fridays.

Many employees will forget to deduct their normal commute from mileage reimbursement requests. You’ll want to remind them.

Direct Expense Reimbursement of Travel Expenses

For employees who travel frequently, providing them with a company credit card is ideal. But for those times when an employee must use their own money for business expenses, you’ll want to reimburse employees quickly.

For easy recordkeeping, have employees complete expense reports when seeking reimbursements. Like the mileage log, it will detail who incurred the expense and when, what it was for, and the amount.

You can reimburse your employees with cash; however best practices would be to pay with check or some other trackable means, like ACH.

Here’s an example of an easy expense report in Excel.

Travel expense report example – employee reimbursement

For each expense, the employee should include receipts to support the amounts requested.

Receipts for purchases should contain the amount, date, place, and a brief description of the expense.

For example, hotel receipts should include:

• The name and location of the hotel.
• The dates stayed.
• Separate amounts for charges (i.e. lodging, meals, or food).

Restaurant and meal receipts should include:

• The name and location of the restaurant.
• The names of people in attendance.
• The date and amount of the meal.

You may choose to reimburse employees for meal tips. Be sure to have a clear policy of what will be reimbursed and what will not. For example, you’ll reimburse up to 20% for tips. Anything above that will not be reimbursed.

You’ll also need to consider your policy for lost receipts. You can still reimburse but have the employee fill out a missing receipt form to document the expense.

In lieu of direct expense reimbursement, consider using a per diem.

A per diem provides the employee with a specified dollar amount per day to use on meals, snacks, lodging, or other miscellaneous purchases. Larger expenses like airfare would be paid using the direct expense reimbursement method or paid for directly by the company.

Per diems should be prorated for partial days of travel. Acceptable methods include the ¾’s method or any other method you choose that is reasonable.  The ¾’s method adds ¾ of a daily per diem rate on departure days and another ¾’s on return days.

The IRS sets per diem rates for cities and metropolitan areas. More expensive locales have higher daily rates than cheaper cities. For example, the daily rate for high cost cities like San Francisco, Vail, Colorado, and Nashville, Tennessee is $297. And many cities are designated high cost for only portions of the year. Miami and Park City, Utah are considered high cost only from December 1 – March 31.

And if you’re not in a high cost city, the daily rate is $200. These per diem rates are often updated each year. So you’ll always want to check for the current rates.

For example, Dave is travelling to Seattle for business. Seattle is a high cost locale. He’s leaving on Monday and returning on Thursday. Seattle’s maximum per diem rate is $297 per day. Dave will receive $222.75 ($297 x ¾) for Monday and Thursday and the full $297 for Tuesday and Wednesday.

Per diems are not taxable income to your employee if you use the IRS rates and your employee provides an expense report with receipts. However, using higher rates will create taxable income for the amount above the federal rate. And not submitting an expense report and receipts will make the entire per diem taxable because you’ll have an unaccountable plan and your company will not have the required receipts to support the tax deduction.

If your business operates in the transportation sector (i.e. shipping, trucking, or rail, etc…), it’s important to note that there are different per diem limits and rules you must follow.

Entertainment Expenses

With the 2017 Tax Cuts and Jobs Act, entertainment expenses are no longer tax deductible for companies.

As an employer, you may still reimburse your employees for entertainment expenses; however, these reimbursements will need to be segregated so that they are not included on your tax return. Examples of entertainment expenses include tickets to entertain clients at sporting events or country club fees for golf memberships.

What documentation you require for entertainment reimbursements is up to you but best practices suggest following the same requirements for travel or mileage reimbursements.

Commingling

If travel or meals involve both a business and personal aspect, only the portion of the expense that is business related is reimbursable.  Expense reports and receipts should indicate whether there are any personal expenses.

For example, an employee makes a business trip to California from Georgia and elects to stay two days after business is finished for a mini-vacation. Best practices would have the employee check out of his hotel room and check back in using his personal credit card to pay the hotel bill for his extended stay. This way he has two different receipts; one for business and one for pleasure. However, if he doesn’t do that and the entire hotel stay is charged on the same receipt, you’ll need to back out the charges related to his personal stay.

None of this information should be taken as legal or financial advice, nor should it deter you from seeking the assistance of a licensed attorney, accountant, or financial services professional. But if you want to make sure your company’s policies for employee reimbursements are consistent with best practices, implementing these policies is a great place to start!

Tags: Business Use of Personal Vehicle Commingling Direct Expense Reimbursement employee Commuting reimbursement Employee Expense Reimbursement employee Monthly Allowance employees reimbursements entertainment expenses Excess Reimbursement Expense Reimbursement IRS Accountable Plans IRS Expense Reimbursement Mileage log and expense report Mileage Logs mileage on odometer Per Diem reimbursed expenses Reimbursing Employees Standard Mileage Rate travel expenses

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What are the Rules for Employee Business Travel?

• Feb 1, 2022
• Best practices for small businesses , Tax

Business travel has substantially decreased over the past couple of years due to the pandemic, but from time to time, employees still need to travel for work-related reasons. Maybe it’s driving between different employer-owned locations within a workday, or maybe it’s to attend a conference or trade show that includes an overnight stay. Regardless of the purpose, it’s important to know how employees are paid for these different activities.

Paying Business Travel Expenses

The first question to ask is whether the company reimburses travel expenses under an accountable plan. An accountable plan allows travel expenses to be excluded from the employee’s wages, meaning they’re not subject to withholding or reporting (i.e., the travel reimbursement doesn’t trigger a Form W-2). There are three requirements for an accountable plan:

• The expense must be work-related
• The employee must provide accurate documentation within a reasonable time
• Any excess reimbursements or advances must be returned to the employer within a reasonable time

Employees are responsible for maintaining good records, which means receipts, mileage documentation, and turning in a reimbursement request in a timely manner. The employer is then responsible for reimbursing the employee also in a timely fashion, generally within 30 days after the employee submits a reimbursement request.

The next question is whether the business travel is within the employee’s normal workday, or whether it requires an overnight stay. Rules for paying expenses and employee hourly wages differ for each of those scenarios.

Meals. If an employee is away from the workplace for the day and has lunch and/or dinner while on the road, that is not a reimbursable business expense because the employee is not staying overnight. However, if the meal is directly related to and necessary for the business, such as attending a business meeting that includes a meal, then it is reimbursable.

Overnight Travel Expenses. Reasonable business-related expenses for travel, lodging and meals can be paid to employees using a per diem rate or reimbursed for actual expenses.

Per diem is a flat rate under an accountable plan for business travel away from home. The General Services Administration (GSA) sets the federal per diem rate, which is $59 for meals and incidentals and $96 for lodging in 2022. Employers can also choose to use the IRS simplified per diem rates which set one rate for urban areas with a higher cost of living and a lower rate for areas with a lower cost. Per diems are not considered wages as long as employees follow the accountable plan rules above for documentation and returning any excess.

Note – business owners and sole proprietors can’t use per diem for lodging expenses and must maintain records of actual expenses instead.

Vehicle Usage. If an employee uses their personal vehicle for business travel, the employee can be reimbursed using the cents-per-mile method or using the actual cost incurred by the employee substantiated by receipts including date(s), mileage, and business purpose. Any reimbursement over the federal mileage rate (58.5 cents per mile in 2022) is taxable and reportable on Form W-2.

If the employee uses a company-owned vehicle for business travel, there are no tax consequences but the employee is required to maintain mileage records. For more information, refer to our blogs on this topic.

• The (Fringe) Benefits of Providing a Company Car
• 2022 Mileage Rates and Tax Rules for business Use of an Automobile

When is Travel Time Paid?

Employees must report – and the employer must pay – all hours the employee works. Employees who are subject to overtime (non-exempt employees) are paid overtime for working more than 40 hours in a week (and in some states, for working more than 8 hours in a workday). Exempt employees are not subject to overtime, so time spent traveling is not paid any differently than their normal salary.

Here are examples of how pay should be handled for different travel situations:

Travel During the Normal Work Day

• An employee’s normal commute between work and home is not work time. This is true even if the employee normally works at a different location each day, and if the employee goes to the workplace outside their normal work hours (to catch up on work over the weekend, for example).
• If an employee travels to different work locations throughout the normal workday, that travel time should be paid. This can include traveling from the employee’s normal workplace to other employer-owned locations, to visit customers, or other work-related travel. This includes traveling out of town and returning within the workday.

Business Travel Requiring an Overnight Stay

• If an employee is a passenger on an airplane, train, bus, boat, or automobile traveling outside normal working hours, that time is not considered work time. However, if the employee is working while a passenger, that time should be paid.
• If the employee is required to drive themselves or others, that time must be paid. If the employee volunteers to drive their own vehicle, the time outside normal work hours is not required to be paid.
• While out of town on overnight business travel, time spent working must be paid, but time spent in personal activities is not compensable. That means if an employee attends a conference from 8 a.m. to 6 p.m. and then goes out to eat with conference buddies, then back to the hotel to watch TV and sleep, only the 10 hours of work – attending the conference – is paid.

What About Spouses or Traveling Companions?

Any company-paid travel expenses on behalf of a spouse or non-employee traveling companion are considered income and reportable on the employee’s Form W-2 as a taxable fringe benefit. For instance, if you have a larger hotel room because of your spouse, only the cost of a single room is considered to be a reasonable business expense. If both parties travel on an airplane, only the employee’s ticket is a business expense.

Your State May Differ

State rules usually follow these federal rules, but be sure to check your state’s requirements to ensure you’re in compliance.

For More Information

Both IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits and Publication 463, Travel Gift, and Car Expenses cover the topic of business travel. Or contact your Mize relationship manager for assistance with your situation – we’re here to help!

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Run » finance, 6 commonly asked questions about employee mileage reimbursement.

Is your company complying with the rules and policies surrounding employee mileage reimbursement? Here are the main things you need to know.

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If your employees use their personal vehicles for work-related tasks, you may be required to reimburse them for their mileage. Let’s look at six frequently asked questions about mileage reimbursement .

[Read more: Should You Give Employees a Company Car ?]

What is mileage reimbursement?

Mileage reimbursement involves compensating your employees for any business-related driving they do. It’s often done when employees use their personal vehicles to travel and run business-related errands.

That means employees will receive a certain amount of compensation for every mile they drive for the business. You could choose to give your employees a monthly mileage allowance, but using the IRS’s standard rate is usually more straightforward. Just make sure that your employees understand how the reimbursement is calculated.

What is considered work-related mileage?

According to the IRS, business mileage is any mileage driven between two places of work. That means you can reimburse your employees for work-related trips outside of their regular commute. This includes the following activities:

• Business trips.
• Meetings with clients and prospective clients.
• Running errands for the business.
• Making deliveries for the business.

Am I required to reimburse my employees?

No federal law requires you to reimburse your employees for using their personal vehicles for work, but some state laws do. California, Illinois, and Massachusetts require companies to reimburse their employees for business-related mileage and expenses.

You should check the laws in your state and consult with an attorney to determine whether you’re required to provide mileage reimbursement. Even if it isn’t a requirement, it may be a good idea if your employees do a lot of work-related driving.

No federal law requires you to reimburse your employees for using their personal vehicles for work, but some state laws do.

How is mileage reimbursement calculated?

The IRS sets a standard mileage reimbursement rate of 58.5 cents per business mile driven in 2022. This rate is based on an annual study of the fixed and variable costs of operating a vehicle, like gas, insurance, depreciation, and standard maintenance.

You’re not required to reimburse employees using the IRS’s mileage reimbursement rate — you can choose a higher or lower amount if you prefer. But if you reimburse your employees at a higher rate, the additional amount is considered gross wages and is subject to payroll taxes.

Are mileage reimbursements tax-deductible?

Yes, reimbursements based on the federal mileage rate are tax-deductible. And since they aren’t considered income, they’re non-taxable for your employees. But if you provide more than the federal mileage rate, the difference is regarded as taxable income.

[Read more: 10 Tax Deductions Your Business Should Know About ]

How do I come up with an employee mileage reimbursement policy?

Here are the biggest things you need to think about when setting up a mileage reimbursement policy:

• Consider the location : Vehicle and fuel costs can vary significantly depending on where you live. A San Francisco-based tech company will pay a different rate than a small business located in Ohio. You should choose a rate that is fair based on your location.
• Find a tracking solution : Your employees need a way to track their mileage so that they can be reimbursed. Fortunately, there are apps that will track your mileage for you so you can avoid manual logging. Using an app also ensures your employees don’t overreport their mileage.
• Create a written policy : You also need to have a written document that outlines your mileage reimbursement policy. For instance, you should clearly identify what constitutes a business trip and what doesn’t.
• Provide examples : Using specific examples will make your policy easier for employees to understand.
• Create a mileage reimbursement form : Finally, creating a standard mileage reimbursement form that employees can fill out each month is helpful. This form ensures you have the information you need come tax season.

[Read more: Top 4 Tech Tools for Managing Travel Expenses ]

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How to Reimburse Employees for Travel Expenses

If you have employees who travel for work, you must know how to reimburse employees for travel expenses. Don’t worry–it’s not as tedious as you think.

With all the tasks and responsibilities that finance managers deal with every day, it’s understandable if they find the reimbursement process tedious. However, there’s no escaping this task as employees must be rightfully reimbursed for corporate travel expenses. In this blog, we discuss how to reimburse employees for travel expenses.

What Is an Employee Reimbursement Policy?

An employee reimbursement policy is a detailed structure that defines the rules and procedures for employees who seek reimbursement for work-related expenses. With an employee reimbursement policy in place, the company can set out the limits and expectations of these expenses.

Are Employers Required to Reimburse Employees for Travel Expenses?

While the Fair Work Act 2009 doesn't explicitly require reimbursement of work-related expenses, Section 325 states the following:

“An employer must not directly or indirectly require an employee to spend, or pay to the employer or another person, an amount of the employee’s money or the whole or any part of an amount payable to the employee in relation to the performance of work, if:  (a) the requirement is unreasonable in the circumstances; and  (b) for a payment—the payment is directly or indirectly for the benefit of the employer or a party related to the employer.”

Since a work-related travel expense is done to accomplish a work objective, it’s most definitely for the benefit of the employer. Moreover, Section 325 protects employees from paying for items that the employer should be responsible for. Common work-related travel expenses include flights, meals and accommodation.

Employee Travel Expense Reimbursement Guidelines

An employee reimbursement policy must guide and protect the employer as much as it guides and protects the employee. The tips listed below can help establish fairness between both parties.

1. Set clear expectations and spending limits

The last thing you want is to have employees requesting reimbursements for items that are not work-related, such as gifts and souvenirs for loved ones back home. To avoid expectations like that, be clear with the spending limits and the benefits they can avail. Indicate in the policy when certain items are not covered so they can manage their expectations.

2. Track the employee’s expenses

Since you’ll be reimbursing their work-related expenses, keep a file of itemised receipts so you can validate what they paid for. It’s important to track their travel expenses to determine how much you should allocate for company travel.

3. Establish a schedule

In addition to establishing expectations, you should also establish a schedule. This goes for both employees submitting their claims and the employer reimbursing the employee expenses. Establish a deadline for submissions, typically no more than 60 days after their trip. There should also be an established timeline for when expenses can be reimbursed to develop trust between the two parties. 

It goes without saying that employers shouldn’t implement rules on one employee and make exceptions for the other. Once you’ve established the employee reimbursement policy, be sure to uphold that for all employees. Having all employees follow the same policies and procedures is an ethical practice that avoids having anyone take advantage of an honest system.

5. Create conditions for the reimbursement policy

An employee reimbursement policy qualifies as an accountable plan if it meets the following conditions:

• The employee incurs the allowable expense while they’re travelling for work or performing services for their employer. The reimbursement will then be applied to the expenses. It must not be something that would have been part of the employee’s salary.
• The employee provides proof of the business expense. Such proof must include the amount, when and where it was incurred, and its purpose.
• The employee pays back any excess of the reimbursement if the employer reimburses more than the employee spent.

6. Record reimbursements

Record reimbursements through an expense platform where you can input the following:

• Employee’s name
• Period covered
• List of reimbursable expenses
• Amount of each expense
• Purpose of each expense
• Total amount for the period

7. Automate where possible

Many automated systems allow employees to submit expenses and receipts on the go, thus increasing convenience and encouraging timely submission of expense reports. With automated systems, both the employee and employer can track the status of expense reports in real time, which reduces the need for status inquiries and provides greater visibility into the reimbursement process.

What Is the Best Way to Reimburse Employees for Expenses?

• Integrated into the payroll system — You can include the reimbursement together with the employee’s payroll. Note that the reimbursement is not part of their salary but must be reflected in their payslip.
• Check or direct deposit — You can pay employees separately by giving them a check or directly depositing the amount to their bank accounts.

Either of these two methods is fine as long as the reimbursement is done efficiently and on time.

Are Employee Reimbursements Taxable?

• Must not include the reimbursement as income in their tax return
• Cannot claim a deduction for them

When it comes to reimbursing employees for travel expenses, automation emerges as the most efficient method for tracking. An expense management platform helps companies streamline the reimbursement process and enhance transparency for both the employee and the employer. With automation, both parties can be sure of the accuracy and compliance with policies and regulations. Employees also feel empowered as they go through a seamless reimbursement experience.

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'do i have to reimburse my employees for that'.

Employees may incur business expenses through the course of their work for travel, tools, equipment, uniforms, and other work-related items. Do you have to reimburse them for these types of expenses? To help you find out, we compiled these frequently asked questions.

General Reimbursement:

Q: how does the federal law impact expense reimbursement.

A: Expense reimbursement might be necessary to satisfy the federal Fair Labor Standards Act's (FLSA) minimum wage and overtime requirements for non-exempt employees. In most cases, under the FLSA, any work-related expense incurred by an employee that would bring the employee’s pay below the minimum wage (or cut into overtime pay) must be reimbursed. Generally, it is a best practice to reimburse all employees for any reasonable business expenses they incur.

Q: What is the deadline for reimbursing employees?

A: Under the FLSA, if the cost would reduce the employee’s pay below the minimum wage or cut into overtime, the reimbursement must be made no later than the next regular payday. In states that require reimbursement for business expenses, most require the reimbursement within 30 days. Check your state law to ensure compliance.

Q: Do I have to reimburse employees for transportation and lodging while they travel for work?

A: Some states require employers to reimburse employees for business trips and other business-related expenses. For example, California requires employers to reimburse employees for all expenses paid (or losses incurred) by the employee while performing their duties. This would include business travel (transportation, lodging, and meals). Check your state law to ensure compliance. Absent a state requirement, employers must also consider their requirements under the FLSA.

Q: Can we set limits on business travel expenses?

A: Employers may set reasonable limits on business travel expenses. For example, some employers require employees to fly coach and will not reimburse employees for upgrades to business or first class. Employers can also dictate what type of lodging or airport transportation is eligible for reimbursement. Limits should be reasonable and communicated to employees in writing before their business trip.

Vehicle Expenses:

Q: we operate a restaurant that delivers. do we have to reimburse employees for gas they use when delivering food using their own cars.

A: Some states expressly require employers to reimburse employees for business expenses, such as gas used when driving for company business. Even if your state doesn’t require reimbursement, consider your FLSA compliance. If a non-exempt employee incurs vehicle-related expenses that would bring their pay below minimum wage (or cut into their overtime pay), reimbursement may be required.

Q: How would I reimburse employees who drive their personal vehicles for business purposes?

A: When reimbursing employees for business-related driving, many employers use the IRS standard mileage rate . Alternatively, some employers calculate the actual cost and reimburse employees accordingly.

Q: What is the IRS standard mileage rate? Do I have to use it?

A: The IRS standard mileage rate is optional and includes the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. For 2022, the IRS standard mileage rate is 58.5 cents per mile. The rate is typically adjusted annually.

Q: The IRS rate doesn’t include parking and tolls? How do I handle those?

A: Employees would need to submit a separate reimbursement request for parking and tolls.

Uniforms, Tools, and Equipment:

Q: we require employees to purchase company uniforms that have our logo on them. do i have to reimburse employees for the uniforms.

A: Several states require employers to pay for the full cost of required uniforms as well as the cost to maintain them. In these states, you should pay for the uniforms upfront or reimburse employees the full amount. Absent a state requirement, if you require the employee to bear the uniform cost, the cost may not reduce their pay below the minimum wage or cut into overtime pay. This rule also applies to any special care, such as dry cleaning or ironing.

Q: Do I have to reimburse employees for tools they need on the job?

A: Some states require employees to pay for the full cost of required tools. In these states, you would either have to pay for the tools upfront or reimburse employees. If there is no state requirement to pay for tools, then you must make sure any cost the employee bears doesn’t reduce their pay below the minimum wage or cut into overtime pay.

Note: Some states make exceptions for certain types of tools or equipment, such as tools and equipment customarily required by the employee's trade. Check your state law for more information.

Q: How do these rules apply to employees classified as exempt from overtime?

A: Employers are prohibited from making deductions from exempt employees' salaries for uniforms, tools, and equipment. If these deductions are made or employees are required to incur these costs without reimbursement, it may result in the loss of the overtime exemption.

Q: If my employees are required to wear masks to prevent the spread of COVID-19 in the workplace, must I pay for the masks?

A: Some states and local jurisdictions have enacted laws or issued regulations or orders that expressly require employers to provide masks to employees. For example, the Los Angeles County Department of Public Health has issued an order requiring that all employers provide employees with, and require them to wear, a well-fitting medical grade mask, surgical mask, or higher-level respirator, such as an N95 or KN95, at all times while indoors at the worksite. Employers will also need to consider any state requirement for reimbursing employees for business expenses. Absent a state or local requirement to pay for masks/business expenses, you must make sure any cost the employee bears doesn’t reduce their pay below the minimum wage or cut into overtime pay.

Q: Do I have to reimburse remote workers for Internet access?

A: As mentioned above, some states expressly require employers to reimburse employees for any reasonable business expenses they incur. This would include Internet access from a home office. Where the expense may be used for work and personal use (such as having an Internet connection), consider a system to help employees monitor and record how much of the cost is related to conducting business activities, and reimburse employees at least that amount. Absent a reimbursement requirement, you must make sure any cost the employee bears doesn’t reduce their pay below the minimum wage or cut into overtime pay.

Conclusion:

To help you comply with federal and state laws, consider requiring employees to:

• Obtain supervisor approval before incurring business expenses.
• Document the business purpose of the expense and back up expenses with a receipt.
• Maintain a log of any business miles driven, including the date and the business reason.
• Obtain and submit receipts for business expenses, such as for airfare, hotels, meals, parking, and tools.
• Request reimbursement in writing.

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Employee Expense Reimbursement 101: What You Need to Know

• December 30, 2021

Every business has expenses. Sometimes, however, it falls to the employee to shoulder those work-related costs using their own money, with the promise that they will receive reimbursement. 

Such reimbursable expenses are often incurred during travel, at business lunches, to purchase necessary tools and supplies, or when an employee must use a personal cell phone for a work-related call, among other examples. 

Some states, like California and Illinois, even have mandates requiring companies to pay back their employees for reasonable expenses like these. 

Nonetheless, reimbursement from your employer isn’t as easy as simply holding your hand out for some cash — and not understanding expense reimbursement can have negative impacts. A poorly-managed expense reporting system is frustrating for the employee, and the misclassification of expenses can wreak havoc on a company’s accounting. 

Even worse still, incorrect reporting by the employer can sometimes cause the employee to overpay payroll withholding taxes.

Therefore, many employees have specific questions about how reimbursement works. For example, what are the rules governing reimbursable expenses? Do employees need to report reimbursements as income or wages? And just what is an “Accountable Plan,” anyway?

In this post, I’ll provide answers to the above, as well as other questions related to employee expense reimbursement, such as: 

• What kinds of expenses should businesses reimburse?

Are reimbursements taxable for the employee?

• Can expenses be reimbursed through payroll? 
• How do accountable and non-accountable plans work?

How do you report reimbursements?

To begin, let’s examine the following question in more detail.

What is expense reimbursement?

The expense reimbursement process enables an employer to pay funds back to an employee for business-related expenses they paid for with their own money. It is also an opportunity to create a policy that outlines procedures and sets clear expectations. 

A good expense reimbursement policy clarifies which expenses are and are not covered and explains how the employee may go about requesting reimbursement and what documentation, such as receipts, they will need. 

Additionally, a well-crafted policy can maximize tax benefits for both parties, the employer and the employee. 

The Fair Labor Standards Act  does not make employee expense reimbursement mandatory (although it does forbid an employee’s expenses to bring their wages lower than the applicable minimum wage or eat into their overtime wages). Nevertheless, it is considered customary and is common practice for businesses to cover certain expenses. 

What should businesses cover?

To put it simply, employers should cover expenses necessary to the operation of the business or the employee’s ability to complete the duties and responsibilities of their job. However, what exactly that means for a given business specifically is open to interpretation. 

For example, if an employee’s job requires travel, the employer may cover meals and lodging. Even entertainment expenses meet the criteria defined by  IRS Publication 463  if these purchases can be shown to have a clear business purpose.  

Gasoline and auto mileage costs related to using a personal vehicle to travel for work are often reimbursable, as are business phone calls. Some additional examples include:

• Office expenses (copy and print services, etc.)
• Conference and registration fees
• Currency conversion fees
• Public transportation
• Laundry, dry-cleaning, suit-pressing during business trips longer than five days
• Overnight delivery
• Parking and tolls
• Car rentals
• Visa/passport fees

On the other hand, some examples of expenses your employer will most likely refuse to reimburse include:

• Auto repairs
• Baby-sitters
• Baggage insurance
• Barbers or hairdressers
• Clothing or toiletries
• Decorations for the office
• In-flight headsets
• Laundry services during business trips shorter than five days
• Loss or theft of cash, property, baggage, or briefcases
• Personal reading materials
• Medical expenses
• In-flight entertainment
• Mini-bar alcoholic refreshments
• Parking tickets, fines, traffic violations
• Spa services

Generally speaking, employees are not required to report reimbursements as income or wages and therefore are not taxable. Nevertheless, there are some exceptions. 

For example, if your employer provides you with a company car, but you use it for personal reasons, some of the costs may be taxable to you. Additionally, if you receive prizes in the form of goods or services, you must report them with your income at fair market value (FMV). 

On the other hand, many categories of reimbursable expenses are nontaxable for the employee provided specific requirements are met. These include: 

• Educational reimbursements (up to $5,250/year)
• Specific insurance premiums
• Gifts with a minimal value or awards such as plaques and trophies
• Meals or lodging on the worksite
• Use of a company van for commuting
• Additionally, up to $265 per month in transportation-related fringe benefits (like parking, vanpooling, or transit passes)

It’s worth noting that many of the above categories do come with specific guidelines that determine their taxability. It’s never a good idea to assume an expense reimbursement is nontaxable without consulting resources or experts. 

Can expenses be reimbursed through payroll?

While the IRS does allow employers to reimburse employee expenses through payroll, some tax implications can come with doing it this way. For example, if the reimbursement is not made as part of an accountable plan, it will be taxable to the employee as wages. 

In fact, any reimbursement payments made to an employee that are not under an accountable plan are taxable to the employee and subject to withholding.

This brings me to the next question…

What is an accountable plan?

An accountable plan is simply a formalized process by which an employee documents their expenses, submits a request for reimbursement, and returns any excess funds. If you’ve ever had to turn in a receipt or record an expense to receive a reimbursement, that’s an example of an accountable plan.

This kind of arrangement has benefits for both the employee and the employer. For the employee, it keeps their reimbursements nontaxable. Meanwhile, the employer can write the same expenses off on their business tax return.

While accountable plans are certainly the norm, some companies choose to forego one in favor of a nonaccountable plan. A company may choose this route for various reasons, such as a desire to minimize record-keeping. Under a nonaccountable plan, reimbursements count as wages and are taxable to the employee.

As mentioned above, reimbursements paid under an accountable plan are not considered taxable income, and therefore you do not need to report them to the IRS.

If an employer reimburses the expenses under a nonaccountable plan, the employer reports the reimbursement as taxable wages to the employee on Form W-2 and takes a wage expense deduction.

In either event, it does not fall to the employee to report expense reimbursements to the IRS.

In closing…

When an employee must cover work-related expenses with their own money, it can be helpful to know that their employer will reimburse them for their trouble. But a poor understanding of employee expense reimbursement can lead to unwanted tax implications.

By better understanding how reimbursement works, you can engage in your work-related expenses more confidently.

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Jeff coyle, cpa.

Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting. Planning and preparation of GAAP and other basis financial statements. Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy. Filing quarterly and annual taxes. Audit support. General financial and planning advice. Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov,  has been with the firm since 2004.  After a career of public accounting and general management, Jody knows the value of good financials.  Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles.  His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies.  His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller.  He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC),  Private Equity and Venture Capital Committee and Family Office Committee.  

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

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Guide to Reimbursable Expenses for Small Businesses

You probably know the feeling of shelling out money for business expenses and waiting for reimbursement. It’s a common scenario for many employees and contractors. And as a small business owner, you understand the frustration of managing these expenses while trying to keep your team happy and your finances in check. 

Understanding reimbursable expenses can help you manage your finances better and ensure you get paid back promptly.

Let’s break down what reimbursable expenses are and how they work.

What are Reimbursable Expenses?

Reimbursable expenses are costs incurred by employees or contractors that are paid back by the company. These expenses typically arise during the course of performing job-related duties. When you spend your own money on business-related activities, the company reimburses you to cover those costs.

Examples include travel costs, meals, and supplies. For instance, if you travel for a business meeting, the company covers your flight, hotel, and rental car expenses. Similarly, business meals and entertainment expenses fall under reimbursable costs. Office supplies and equipment needed for work also qualify.

As a business owner, you might worry about the financial burden on your employees and the importance of keeping track of these expenses to ensure fair and timely reimbursement. For more insights on managing your finances, check out these beginner finance tips .

Types of Reimbursable Expenses

When you travel for business, you often incur various costs that your company will reimburse. These include flights, hotels, rental cars, and other transportation costs. Whether you’re flying across the country for a conference or driving to a nearby city for a client meeting, these expenses add up. Your company covers these costs to ensure you can focus on your work without worrying about the financial burden. Make sure to keep all receipts and document your travel details to streamline the reimbursement process.

Travel Expenses

Meals and entertainment.

Business meals and entertainment expenses also fall under reimbursable expenses. If you take a client out for lunch or dinner, those costs are typically covered. This category also includes expenses for team-building activities or entertaining clients. For example, if you host a dinner to discuss a project or take a client to a sporting event, these costs are reimbursable. It’s important to document the purpose of the meal or entertainment and keep all receipts to ensure smooth reimbursement.

Office Supplies and Equipment

Supplies, equipment, and tools needed for work are another type of reimbursable expense. This can range from basic office supplies like pens and paper to more significant purchases like a new computer or specialized tools required for your job. If you need to buy something to perform your duties effectively, your company will typically cover these costs. Keep detailed records of these purchases, including receipts and any necessary approvals, to facilitate the reimbursement process.

Professional Development

Investing in professional development is often encouraged and supported by companies. Training, conferences, and certifications that enhance your skills and knowledge are usually reimbursable. For instance, if you attend a workshop to improve your project management skills or obtain a certification relevant to your role, these expenses are covered. Document the costs and provide proof of attendance or completion to ensure you receive reimbursement.

As a business owner, you know that reimbursing expenses isn’t just about paying people back; it’s about showing your team that you value their efforts and want to support them.

Benefits of Reimbursing Expenses

Reimbursing expenses shows employees that the company values their contributions. When you cover costs like travel, meals, and supplies, you demonstrate that you care about their financial well-being. This practice makes employees feel appreciated and supported, which can boost morale and job satisfaction. Happy employees are more likely to stay with the company, reducing turnover rates and the costs associated with hiring and training new staff. Additionally, offering reimbursement for professional development opportunities, such as training and certifications, can attract top talent who are eager to grow their skills and advance their careers.

Attracts and Retains Talent

TIP: Learn about the best employee benefits to include in your package to attract and retain top talent.

Boosts Productivity

When employees don’t have to worry about out-of-pocket expenses, they can focus more on their work. Knowing that the company will reimburse them for necessary costs allows them to make decisions quickly and efficiently. For example, if an employee needs to travel for a client meeting, they can book flights and accommodations without hesitation, knowing they won’t be financially burdened. This streamlined approach reduces stress and distractions, enabling employees to concentrate on their tasks and deliver better results. Moreover, covering expenses for office supplies and equipment ensures that employees have the tools they need to perform their jobs effectively, further enhancing productivity.

TIP: Use Homebase’s time clock feature to track employee hours and manage productivity more effectively.

Ensures Compliance

Proper documentation and reimbursement practices help ensure compliance with tax laws and regulations. When you reimburse employees for business-related expenses, it’s important to keep accurate records and receipts. This documentation is necessary for tax purposes and can protect the company during audits. By maintaining detailed records of reimbursed expenses, you can justify deductions and avoid potential penalties. Additionally, having a clear reimbursement policy in place helps standardize the process and ensures that all employees follow the same guidelines. This consistency reduces the risk of errors and discrepancies, making it easier to manage expenses and stay compliant with legal requirements.

TIP: Stay compliant with tax laws by mastering small business tax compliance .

Understanding the reimbursement process helps ensure you get paid back quickly and accurately for any business-related expenses. Here’s a straightforward breakdown of how it works:

How Does the Reimbursement Process Work?

First, you need to submit an expense report. This report should include all relevant receipts. Whether you’ve paid for a business lunch, travel expenses, or office supplies, keep those receipts handy. They serve as proof of the expenses incurred and are necessary for the reimbursement process.

Once you’ve compiled your expense report, submit it to your manager or the accounting department. This step is crucial as it initiates the review process. Make sure your report is detailed and includes all necessary documentation to avoid delays. A well-organized report speeds up approval and ensures you get reimbursed without any issues.

The next step involves the review and approval of your submitted expenses. Your manager or the accounting department will go through your expense report to verify the legitimacy of the expenses. They check that all expenses comply with company policy and that all receipts are valid. This review process helps maintain transparency and ensures that only eligible expenses are reimbursed.

After your expenses are approved, the reimbursement is processed. You will receive the reimbursed amount either through your paycheck or as a separate payment. The method of reimbursement can vary depending on the company’s policy. Some companies prefer to include reimbursements in the regular payroll cycle, while others may issue separate payments to ensure quicker processing.

This simple yet effective process ensures that you are reimbursed for any business-related expenses you incur. By following these steps and keeping accurate records, you can make the reimbursement process smooth and hassle-free.

TIP: Use free payroll apps to manage reimbursements efficiently.

Creating a reimbursement policy might seem daunting, but it’s crucial for maintaining financial clarity and fairness in your business.

How to Create a Reimbursement Policy

Start by clearly outlining what expenses are covered. This step helps avoid confusion and ensures everyone knows what qualifies for reimbursement. Common reimbursable expenses include travel costs, meals, office supplies, and professional development. Specify each category in detail. For travel expenses, include flights, hotels, rental cars, and other transportation costs. For meals, cover business-related dining and entertainment. Office supplies should include items like pens, paper, and equipment necessary for work. Professional development might encompass training sessions, conferences, and certifications. Providing a comprehensive list helps employees understand what they can claim and reduces the likelihood of disputes.

Define Eligible Expenses

TIP: Check out this payroll guide for small businesses to ensure your reimbursement policy aligns with payroll processes.

Set Spending Limits

Establish maximum amounts for each type of expense. Setting spending limits ensures that expenses remain within budget and prevents excessive claims. For instance, set a daily limit for meals and a cap on hotel rates. Define acceptable price ranges for flights and rental cars. For office supplies, specify the maximum allowable cost for individual items. Professional development expenses should have a clear budget, covering registration fees, travel, and accommodation. These limits help manage costs and ensure fair reimbursement practices. Communicate these limits clearly to all employees, so they know the boundaries for their expense claims.

TIP: Simplify your finances with these stress-free finance tips .

Outline the Submission Process

Explain how employees should submit expense reports and receipts. A clear submission process streamlines reimbursement and reduces errors. Require employees to fill out an expense report detailing each expense, including dates, amounts, and business purposes. Attach all relevant receipts to the report. Specify acceptable formats for receipts, such as digital copies or scanned images. Provide a template or form for expense reports to ensure consistency. Outline the timeline for submissions, such as within 30 days of incurring the expense. This process ensures that all necessary information is captured and makes it easier for the accounting department to review and approve claims.

Communicate the Policy

Share the policy with all employees and provide training if needed. Communication is key to ensuring everyone understands the reimbursement policy. Distribute the policy document through email, the company intranet, or during team meetings. Make it easily accessible for future reference. Consider holding training sessions to walk employees through the policy, explaining eligible expenses, spending limits, and the submission process. Address any questions or concerns during these sessions. Regularly remind employees about the policy, especially when updates or changes occur. Clear communication helps prevent misunderstandings and ensures compliance with the reimbursement policy.

Managing reimbursable expenses can be a headache, but with the right strategies, you can make it a breeze.

Auto-convert timesheets into wages, catch errors, pay your team, and file taxes all in one place.

5 Tips for Managing Reimbursable Expenses

Using expense management software simplifies the reimbursement process and ensures accuracy. This software automates the submission, approval, and reimbursement of expenses. Employees can easily upload receipts and submit expense reports through a user-friendly interface. Automation reduces manual errors and speeds up the process, making it more efficient for both employees and the accounting department. The software also provides real-time tracking, so you can monitor expenses and approvals at any time. This transparency helps maintain control over company finances and ensures that all expenses are accounted for properly.

Use an Expense Management Software

Enforce the policy consistently.

Consistency is key when managing reimbursable expenses. Ensure all employees follow the same rules and guidelines. This means applying the reimbursement policy uniformly across the organization. When everyone adheres to the same standards, it reduces confusion and potential disputes. Consistent enforcement also helps maintain fairness, as all employees are treated equally regarding expense claims. Make sure managers understand the policy and enforce it within their teams. Regular training sessions and reminders can help keep everyone on the same page and prevent any deviations from the established guidelines.

Review Expenses Regularly

Regularly reviewing expenses helps catch any issues or discrepancies early on. Set a schedule for periodic reviews of submitted expense reports. This can be done monthly or quarterly, depending on the volume of expenses. During these reviews, look for any unusual patterns or inconsistencies. Verify that all expenses comply with the reimbursement policy and that receipts are valid. Regular reviews also help identify any potential fraud or misuse of company funds. By staying vigilant, you can address problems promptly and ensure that all reimbursed expenses are legitimate and necessary.

Provide Clear Guidelines

Providing clear guidelines ensures employees understand what is and isn’t covered. Outline the types of expenses eligible for reimbursement and any spending limits. Use straightforward language to avoid any misunderstandings. Include examples of acceptable and non-acceptable expenses to give employees a better idea of what to expect. Make the guidelines easily accessible, such as in an employee handbook or on the company intranet. Clear guidelines help employees make informed decisions about their expenses and reduce the likelihood of submitting non-reimbursable claims. Regularly update the guidelines to reflect any changes in company policy or tax regulations.

TIP: Manage your finances better with these cash flow tips .

Keep Detailed Records

Maintaining accurate records is vital for tax purposes and audits. Keep detailed records of all reimbursed expenses, including receipts, expense reports, and approval documentation. Organize these records in a systematic way, such as by date or expense category. Digital records can be stored in the expense management software, making them easy to retrieve when needed. Detailed records provide a clear audit trail, which is important for compliance with tax laws and regulations. They also help resolve any disputes or questions about specific expenses. By keeping thorough records, you ensure transparency and accountability in the reimbursement process.

TIP: Protect your financial health with these money management hacks .

• What : Reimbursable expenses are costs paid back by the company.
• So What : They help manage finances and ensure prompt repayment.
• Pros & Cons : Pros: attract talent, boost productivity, ensure compliance; Cons: financial burden, record-keeping.
• Bottom Line : Clear policies and tools streamline the process and support employees.

By following these tips and utilizing the right tools, you can manage reimbursable expenses effectively, ensuring a smooth and efficient process for both you and your employees.

Ready to simplify managing reimbursable expenses for your team? Try Homebase today for easy scheduling, payroll, and HR management. Sign up now and streamline your business operations!

Remember:  This is not legal advice. If you have questions about your particular situation, please consult a lawyer, CPA, or other appropriate professional advisor or agency.

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Are employee reimbursements taxable, in this article, expense reimbursements provided under an accountable plan, expense reimbursements provided under a non-accountable plan, employee reimbursement examples, practical implications for employees and employers.

Employee reimbursements are payments made by an employer to cover work-related expenses incurred by employees. These can include travel expenses, business supplies, meals, and other costs necessary for performing your job. Depending on the plan under which your employer provides reimbursements, they may be taxable or non-taxable.

An accountable plan is a reimbursement arrangement that meets the IRS requirements for non-taxable expense reimbursements. The reimbursement plan must meet the following criteria to be considered accountable:

• Business connection: The expenses must have a business connection. You must have paid or incurred deductible expenses while performing services for your employer.
• Substantiation: You must adequately account for these expenses within a reasonable period. This typically involves providing detailed information such as receipts, the time and place the expense was incurred, and the business purpose.
• Return of excess amounts: You must return any excess reimbursement or allowance to your employer within a reasonable period. The IRS considers a reasonable period of time for the return of excess amounts to be 120 days.

If your reimbursements meet these criteria, they will not be included in your wages and are not subject to income tax or employment taxes. This makes accountable plans advantageous for both employers and employees.

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Non-accountable plans do not meet the IRS requirements for non-taxable reimbursements. This means that:

• You aren't required to substantiate expenses with receipts or other documentation.
• You are not required to return any excess amounts your employer has provided.

Because these plans do not meet the IRS criteria, all reimbursements provided under non-accountable plans are considered taxable. They must be included in your wages and are subject to income tax, Social Security, Medicare, and unemployment taxes.

See the examples below to better understand when your reimbursements will not be taxed as part of your income.

Travel reimbursements

Reimbursements for expenses like meals, lodging, and travel when going away on business are not taxable if you keep relevant receipts and receive reimbursement according to the actual expenses you accrued, or if your employer reimburses you with the official IRS per diem rates. Learn more about traveling for work and receiving reimbursement .

Business mileage reimbursements

Your mileage reimbursement will not be taxed if you keep a detailed mileage log documenting the miles you've driven for business purposes, and your employer reimburses you at the standard IRS mileage rate or a rate below the official one. Any excess will be taxed as part of your income. Read more about receiving mileage reimbursement from your employer and download the free IRS mileage log template to record your business mileage.

Cell phone reimbursements

If your employer has provided you with a phone you mainly use for business purposes, this benefit is non-taxable. You can occasionally use the phone for personal calls without triggering a taxable reimbursement. The main requirement is that the phone is primarily used for business purposes.

Moving expenses reimbursements

According to the 2018 Tax Cuts and Jobs Act, moving expense reimbursements are now taxable for all employees except for active-duty members of the Armed Forces. You can read more on moving expenses for members of the Armed Forces.

Reimbursements under a non-accountable plan increase your taxable income, potentially placing you in a higher tax bracket and affecting take-home pay. Proper documentation and timely submission of expense reports are crucial to ensure that your reimbursements remain non-taxable.

Employers need to design their reimbursement policies to meet accountable plan criteria to avoid additional payroll taxes. This involves setting clear guidelines for expense reporting and ensuring compliance with substantiation and return of excess reimbursement rules.

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IRS Tax Tip 2022-104, July 11, 2022

Business travel can be costly. Hotel bills, airfare or train tickets, cab fare, public transportation – it can all add up fast. The good news is business travelers may be able to off-set some of those costs by claiming business travel deductions when they file their taxes.

Here are some details about these valuable deductions that all business travelers should know.

Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. The travel period must be substantially longer than an ordinary day's work and a need for sleep or rest to meet the demands the work while away.

Travel expenses must be ordinary and necessary. They can't be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business and there are special rules for conventions held outside North America .

Deductible travel expenses while away from home include the costs of:

• Travel by airplane, train, bus or car between your home and your business destination.
• Fares for taxis or other types of transportation between an airport or train station to a hotel, from a hotel to a work location.
• Shipping of baggage and sample or display material between regular and temporary work locations.
• Using a personally owned car for business which can include an increase in mileage rates .
• Lodging and non-entertainment-related meals .
• Dry cleaning and laundry.
• Business calls and communication.
• Tips paid for services related to any of these expenses.
• Other similar ordinary and necessary expenses related to the business travel.

Self-employed or farmers with travel deductions

• Those who are self-employed can deduct travel expenses on  Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) .
• Farmers can use  Schedule F (Form 1040), Profit or Loss From Farming .

Travel deductions for the National Guard or military reserves

National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty .

Recordkeeping

Well-organized records make it easier to prepare a tax return. Keep records, such as receipts, canceled checks, and other documents that support a deduction.

More information:

• Publication 463, Travel, Gift, and Car Expenses
• IRS updates per diem guidance for business travelers and their employers

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The key to enhanced corporate travel experiences is not a one-size-fits-all approach.

Published: June 24, 2024

Many employees crave personalized travel experiences, raising the stakes for business travel management. 

As corporate travel climbs in priority for businesses looking to connect face-to-face with coworkers and clients, one thing remains top of mind for companies prioritizing employee well-being: facilitating the corporate travel experience from start to finish. 

When thoughtfully planned, corporate travel can be a powerful lever to shape the employee experience. In a survey of more than 300 full-time workers conducted by Business Travel News in April of 2023, 84% of respondents said business travel was “important” or “very important” for their job satisfaction. 

Four in 10 employees also say business travel supports their personal and professional growth, according to a 2024 survey of more than 4,000 business travelers by travel booking and management company TravelPerk. Additionally, 31% of respondents said business travel made them feel more passionate about their jobs. 

However, with corporate traveler preferences varying depending on employee and use case, companies can aim to personalize experiences as much as they can. They can tailor the corporate travel experience to better fit the needs of their employees and evolve the experience for this new era of corporate travel. 

What does modern business travel look like?

The face of corporate travel is changing, with several key trends impacting travel spend.  

Live event attendance is on the rise as employees and employers alike seek out industry events to enhance their career development. It was the top driver of increased travel spend in 2023, according to Deloitte’s 2023 corporate travel study , a survey of more than 330 travel managers and executives with travel-budget oversight, including 106 U.S.-based respondents. This trend is expected to continue, with more than half of respondents saying they expected industry events to increase their travel spend in 2024.

In terms of how and when employees travel, flexibility is key. Day-return trips – where employees fly to their destination and return on the same day – have declined, as employees increasingly seek to attend to their well-being with extended travel stays. TravelPerk reports day-return flights made up just 9% of their bookings in 2023, down from 19% in 2019. As a result, employers may face pressure to increase their travel spend to accommodate more overnight stays. 

Finally, employees tend to crave more comfortable accommodations, driving up travel costs. Half of the decision-makers included in Deloitte’s survey cited employees’ luxury expectations – including business class travel – as a factor that increased their travel spend in 2023. Also, as employees seek more flexibility, including being able to modify bookings mid-trip and choose lodging like rental homes, employers may need to increase their spend and offer additional options.

Flexible travel policies and simplified expense reporting

Creating personalized travel experiences starts at home, with travel and expense policies that allow employees to book flights and accommodations to meet their varying needs.

For many organizations, this has meant expanding the accommodations included in their corporate travel policies. Policies that included non-hotel accommodations, for example, reached a tipping point in 2023, according to Deloitte’s survey. Nearly half (45%) of U.S. companies now include non-hotel lodging in their corporate travel bookings – a fivefold increase year-over-year. Just 10% of respondents said their company does not reimburse for non-hotel accommodation, down from roughly 50% year-over-year.

Leaders will also seek opportunities to simplify expense reporting and enhance the employee experience. Business travelers cited expense reporting as their most pressing pain point in the April 2023 Business Travel News’ survey , signaling a growing demand for seamless, centralized payment experiences. 

Creating personalized corporate travel experiences

Here are four strategies to consider as you update your corporate travel policy.

1. Leverage technology to facilitate flexible booking.

Today’s employees crave flights and accommodations tailored to their needs, an area where technology can excel. Machine learning algorithms can suggest compliant flights and accommodations matched to an employee’s preferences or use case, as well as accommodate last-minute itinerary changes. It can also help employees find lower-cost bookings to help manage travel costs. 

2. Offer a range of accommodations.

As employees increasingly seek out non-traditional accommodations for corporate travel, you can look for opportunities to offer a broader choice in accommodations while managing expenses. You can consider negotiating agreements with short-term rental companies, for example, or maintaining rental homes in common travel destinations.

3. Create frictionless payment experiences.

You can consider finding centralized payment solutions that simplify the expense process. Trip-specific travel cards, for example, can be added to employees’ digital wallets for easy payment during travel, while also offering guidance on travel policy compliance and insights into travel spend. 

4. Offer personal travel benefits as a perk.

The opportunity to travel can be a motivator for employees, and employers can make it even better with membership rewards. You can consider selecting travel cards with built-in personal point benefit systems to allow employees to earn rewards for their business travel, such as gift cards, shopping perks and travel rewards.  

5. Use data as your guide.

The right technologies and solutions don’t just help create personalized experiences for employees, but they also provide data that can offer organization-wide insights. You can use data to track travel trends and preferences across your organization, including unmet needs or areas of noncompliance that could be addressed with updated travel policies. 

The Takeaway

Corporate business travel can play an important role in the employee experience. As employees increasingly seek out tailored travel experiences suited to their preferences and use cases, organizations have an opportunity to stand out with flexible travel policies. Doing this well can require leveraging the right solutions, including technology and payment solutions, to provide employees with a range of booking options while also managing travel costs.

Learn more about American Express’s suite of supplier payment and corporate T&E solutions here .

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Overview of Travel Insurance Coverage

What does travel insurance cover, what does credit card travel insurance cover, what travel insurance coverage do you need to pay more for, choosing the right travel insurance, what does travel insurance cover frequently asked questions, understanding what travel insurance covers.

Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate insurance products to write unbiased product reviews.

The information for the following product(s) has been collected independently by Business Insider: Chase Freedom Flex®. The details for these products have not been reviewed or provided by the issuer.

• Travel insurance is intended to cover risks and financial losses associated with traveling.
• Coverage can include trip cancellation, baggage protection, medical care, and emergency evacuation.
• When filing a claim, be specific and comprehensive in your documentation to ease the process.

Whether it's a trip across the world or a trip across the state, having travel insurance provides major relief if things go awry. Flight delays, lost baggage, illness, injuries, and other unforeseen events can disrupt even the best-laid plans. With a major disruption comes the potential for unanticipated expenses.

Travel insurance and the coverage it offers can help keep you protected and save you money in the long run.

Travel insurance policies protect travelers from financial losses should something go wrong during their trip. You can customize which coverages you want to include, and there are several to choose from.

"Common types of coverage include trip cancellation, trip interruption, baggage protection, coverage for medical care if you get sick or hurt during your trip, and emergency medical evacuation," says Angela Borden, a travel insurance expert and product strategist for travel insurance company Seven Corners.

Travel insurance plans offer nonrefundable payments and other trip-related expenses. While monetary compensation is a primary benefit, there is another valuable perk of travel insurance. It can provide peace of mind.

Your specific travel insurance plan (and its terms and conditions) will determine the minutia and specifics of what is covered. As with most other forms of insurance, a general rule of thumb is the more you spend, the better your coverage.

"Travel insurance can be confusing, so it's best to research a reputable company that specializes in travel insurance and has a long history of successfully helping travelers all over the world," says Borden.

Trip cancellations and interruptions

A travel insurance policy can reimburse you for a prepaid, nonrefundable trip if it is canceled for a covered event, such as a natural disaster or a global pandemic.

Trip interruption insurance covers you if you're already on your trip and you get sick, there's a natural disaster, or something else happens. Make sure to check with your travel insurance providers to discuss any inclusions, coverage, and more.

Travel delays and missed connections

Travel delay insurance coverage provides reimbursement for any expenses you incur when you experience a delay in transit over a minimum time. Reimbursements can include hotels, airfare, food, and other related expenses.

Medical emergencies and evacuations

Typically, US healthcare plans are not accepted in other countries. So travel insurance with medical coverage can be particularly beneficial when you are abroad. Medical coverage can also help with locating doctors and healthcare facilities.

Medical transportation coverage will also pay for emergency evacuation expenses such as airlifts and medically-equipped flights back to the US. Out of pocket, these expenses can easily amount to tens of thousands of dollars. Certain plans may even transport you to a hospital of choice for care.

Travel insurance generally does not include coverage for pre-existing conditions. That said, you can obtain a pre-existing condition waiver, which we will talk about later.  

Baggage and personal belongings

Most airlines will reimburse travelers for lost or destroyed baggage, but be prepared for limitations. Travel insurance plans will typically cover stolen items, such as those stolen out of a hotel room. This may not include expensive jewelry, antiques, or heirloom items. Typically, airlines have a few days to recover your bag.

In the meantime, you can make a claim to pay for items like certain toiletries and other items you need to pick up. If your bag is truly lost or you don't get it for an extended period, you can file a true lost baggage claim.

A major perk on several travel credit cards is embedded credit card travel insurance . Typically, you will need to use the specific card for the transaction (at least with partial payment) for travel coverage to kick in.

Each card has specific rules on what exactly is covered. But one of the industry leaders is the $550-per-year Chase Sapphire Reserve credit card. Here's a snapshot of what is covered with this specific card:

• Baggage delay: up to $100 reimbursed per day for up to five days if a passenger carrier delays your baggage by more than six hours.
• Lost and damaged baggage: up to $3,000 per passenger per trip, but only up to $500 per passenger for jewelry and watches and up to $500 per passenger for cameras and other electronic equipment.
• Trip delay reimbursement: up to $500 per ticket if you're delayed more than six hours or require an overnight stay.
• Trip cancellation and interruption protection: up to $10,000 per person and $20,000 per trip for prepaid, nonrefundable travel expenses.
• Medical evacuation benefit: up to $100,000 for necessary emergency evacuation and transportation when on a trip of five to 60 days and traveling more than 100 miles from home.
• Travel accident insurance: accidental death or dismemberment coverage of up to $100,000 (up to $1,000,000 for common carrier travel).
• Emergency medical and dental benefits: up to $2,500 for medical expenses (subject to a $50 deductible) when on a trip arranged by a travel agency and traveling more than 100 miles from home.
• Rental car coverage: primary coverage for damages caused by theft or collision up to $75,000 on rentals of 31 days or fewer

More protections are included with cards with an annual fee, but there are exceptions. The no-annual-fee Chase Freedom Flex, for instance, includes up to $1,500 per person (and up to $6,000 per trip) in trip cancellation and trip interruption coverage.

However, there are some differences between credit card travel coverage and obtaining coverage from a third party.

"Credit card coverage does not typically provide travel medical benefits," Borden says. "For protection if you get sick or hurt while traveling, you'll want a travel insurance plan with medical coverage."

Whether you get your travel insurance in a standalone policy or through a credit card, it's important to review your plan details carefully. In either case, there may be exclusions and other requirements such as deadlines when filing a claim, Borden notes.

Knowing what travel insurance doesn't cover is as important as knowing what it does cover.

"Travelers should understand that travel insurance benefits come into play only if a covered reason occurs," Borden says. Most standard travel insurance plans won't reimburse you for the following:

Cancel for any reason (CFAR)

Cancel-for-any-reason travel insurance covers a trip cancellation for any reason, not just a covered event. your standard benefits won't kick in unless it's a covered event. For instance, you'll be reimbursed simply for changing your mind about taking a trip.

That said, CFAR travel insurance is not without its downsides. For one, it's more expensive than traditional insurance, and most CFAR policies will only reimburse you for a percentage of your travel expenses. Additionally, CFAR policies aren't available for annual travel insurance . 

You can find our guide to the best CFAR travel insurance here.

Foreseen weather events

Sudden storms or unforeseen weather events are typically covered by standard travel insurance plans. There are exceptions to be aware of. For example, an anticipated and named hurricane will not be covered.

Medical tourism

If you're going to travel internationally for a medical procedure or doctor's visit, your travel insurance plan will not cover the procedure itself. Most medical travel plans also won't cover you if something goes wrong with your procedure.

Pre-existing conditions and pregnancy

Those with specific pre-existing conditions, such as someone with diabetes and needing more insulin, will not be covered by most plans. In addition, pregnancy-related expenses will likely not be covered under most plans.

That said, you can obtain a pre-existing condition waiver for stable conditions. In order to obtain a wavier, you will need to purchase travel insurance within a certain time frame from when you booked your trip, usually two to three weeks, depending on your policy.

Extreme sports and activities

Accidents occurring while participating in extreme sports like skydiving and paragliding will typically not be covered under most plans. However, many plans offer the ability to upgrade to a higher-priced version with extended coverage.

Navigating claims and assistance

When a trip goes awry, the first thing you should do is document everything and be as specific as possible with documentation. This will make the claims process easier, as you can substantiate and quantify your financial losses due to the delay.

For example, your flight home has been delayed long enough to be covered under your policy, you'll want to keep any receipts from purchases made while waiting. For instances where your luggage is lost, you will need to file a report with local authorities and document all the items you packed.

Cancellation protection also requires meticulous attention to detail. If you're too sick to fly, you may need to see a doctor to prove your eligibility. If an airline cancels a flight, you'll also need to document any refunds you received as travel insurance isn't going to reimburse you for money you've already gotten back. 

Part of the benefit of CFAR insurance is the reduced paperwork necessary to file a claim. You'll still need to document your nonrefundable losses, but you won't have to substantiate why you're canceling a trip.

Each plan should be personalized to meet the insured party's needs. Some travelers prefer to stick to the bare minimum (flight cancellation benefits through the airline). Others want a comprehensive plan with every coverage possible. Before you buy anything, set your destination. Are there any travel restrictions or changes pending? Does your destination country require emergency or other medical coverage?

If the destination airport is known for lost or delayed luggage, travelers should keep important items in carry-ons. Lost or delayed luggage coverage protects insured parties in the event of a significant delay or total loss.

Second, check current credit card travel benefits to avoid redundancies. Savvy travelers don't need to pay for the same coverage twice.

Finally, consider your individual needs. Do you have a chronic medical condition, or do you feel safe with emergency-only medical coverage? Keep in mind, this does not include coverage for cosmetic surgery or other medical tourism. Do you have a budget limit for travel insurance? Asking and answering these important questions will help every traveler find the right product.

Most travel insurance plans are simple, and Business Insider's guide to the best travel insurance companies outlines our top picks. Remember, read your policy and its specifics closely to ensure it includes the items you need coverage for.

No one likes to dwell on how a trip might not go as planned before even leaving. However, at its core, travel insurance provides peace of mind as you go about your trip. While the upfront cost may seem significant, when you compare it to the potential expenses of a canceled flight, emergency evacuation, or a hefty medical bill, it's a small price to pay in the grand scheme of things.

Coverage for pandemics vary from policy to policy. Some travel insurance companies have specific provisions for pandemic-related cancellations, while others may exclude them entirely.

Sports injuries are often covered under travel insurance, but high-risk or adventure sports might require additional coverage or a special policy.

Travel advisories have different effects on your travel insurance depending on your policy. Traveling to a country already under travel advisory may invalidate your coverage, but if you're already traveling when a travel advisory is announced, you may be covered.

Travel insurance usually covers the cost of emergency medical evacuations to the nearest suitable medical facility, and sometimes back to your home country, if necessary.

Many travel insurance policies provide coverage for the cost of replacing lost or stolen passports during a trip.

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