An Accountable Plan ("AP") is a specific type of allowable fringe benefit by employers for their employees which allows tax-free reimbursement for certain expenses. This means you as the employee, can be reimbursed for expenses (e.g. home office) on a tax-free basis, while still taking the deduction on the side of the business.
If you’re an S-Corp, you are also an employee of the company, so this is a benefit you may be entitled to presuming you meet and adhere to certain qualifications.
There are three requirements for an AP reimbursement:
Business Connection: Must be for expenses incurred by employee for work performed, and must not be for an amount that would have otherwise been paid in wages.
Substantiation: The employee must substantiate the amount of the expenses within a reasonable period (minimum quarterly), e.g. provide a mileage log, provide receipts, provide a breakdown of home office-use & utilities.
Return of Excess: If the employer gives the employee an amount above what has been substantiated, it either must be returned within a reasonable period or included as wages to the employee.
So as an S-Corp owner - how do we see APs usually utilized?
Most commonly - I’ve seen them utilized as reimbursement for home office expenses to owners (must be your primary place of business to qualify). Typically, they create a home office allocation breaking down their personal vs. business use of their home and create a quarterly reimbursement policy from the company to the employee for the agreed-upon amount.
Additionally to meeting the three requirements above, you must have a Written Policy for your AP, signed by your employee that lays out:
Process for submitting expenses
Time period for submitting expenses
Types of reimbursable expenses
Maximum allowable expenses
Preferred suppliers for expenses (if applicable)
Here is a nice AP template provided by Intuit that covers the above items.
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