Learning Center
We keep you up-to-date on the latest tax changes and news in the industry.
Accountable Plans: A Win-Win for Employers and Employees
Article Highlights:
Accountable Plan
Overcoming Tax Cuts and Jobs Act Limits
Benefits From an Employers Point of View
Benefits From an Employees Point of View
IRS Criteria
Basic Plan Wording
Plan Customization
As an employer or an employee one intricacy of tax laws and regulations that often goes unnoticed is the concept of Accountable Plans. These plans, when implemented correctly, can provide significant tax benefits for both employers and employees.
Under the Tax Cuts and Jobs Act (TCJA) signed into law by President Trump in 2017, the rules for deducting employee business expenses changed significantly. Prior to the TCJA, employees could potentially deduct unreimbursed business expenses as miscellaneous itemized deductions on their personal income tax returns.
However, for tax years 2018 through 2025, the TCJA suspended the ability for employees to deduct unreimbursed business expenses as an itemized deduction. This includes expenses such as local business transportation and away-from-home travel expenses.
An accountable plan provides a way around the TCJA deduction restrictions. Accountable plans are reimbursement or allowance arrangements that meet the criteria set by the IRS. These plans allow employers to reimburse employees for business-related expenses without the reimbursement being considered taxable income. There are benefits for both employer and employee:
From an Employer's Perspective - The benefits for employers are twofold. First, reimbursements under an Accountable Plan are not subject to payroll taxes. This means employers can save on their share of FICA (Social Security and Medicare) taxes, which can add up to substantial savings. Second, these reimbursements are deductible as business expenses, further reducing the company's taxable income.
From an Employee's Perspective - For employees, reimbursements under an Accountable Plan are not considered taxable income. This means they do not have to report these reimbursements on their income tax returns. There’s also no FICA tax withholding for the reimbursement received by the employee. As a result there’s significant tax savings for employees, especially those who frequently incur business-related expenses.
However, to qualify for these benefits, the plan must meet three criteria set by the IRS:
Business Connection: The expenses must be incurred while performing services as an employee.
Substantiation: Employees must provide their employers with documentary evidence of these expenses within a reasonable time.
Returning Excess Amounts: If an allowance exceeds the substantiated expenses, the excess must be returned within a reasonable time.
Accountable Plans can be a win-win for both employers and employees. They provide a way for employers to reimburse employees for business-related expenses without increasing their tax liability. At the same time, employees can receive these reimbursements tax-free, leading to significant tax savings.
However, setting up and maintaining an Accountable Plan requires an understanding of IRS regulations. It's crucial to ensure that the plan meets all IRS criteria to avoid potential tax penalties. Here's a very basic example of what an accountable plan might look like:
[Your Company Name] Accountable Plan
|
Please note that this a basic example and may not cover all the necessary specifics appropriate for your business. It is highly recommended additional detail such as the following be added:
Date the plan becomes effective.
Type of expenses reimbursable under the plan.
Extent to which supervisory approval of expenses is required.
Cost limits applicable to the different types of expenses.
Overall periodic limits on periodic reimbursable expenses.
Time limits for submitting expense requests.
The procedures for submitting requests.
Required documentation by type of expense.
How and when excess reimbursements must be returned.
If applicable, a list of preferred suppliers.
If you have more questions about Accountable Plans or need a consultation to customize your plan, please contact this office.
Want our best tax and accounting tips and insights delivered to your inbox?
Sign up for our newsletter.
Benefits of having a business advisor
Your CFO, Reimagined as a Financial Doctor
Diagnosing root causes, prescribing solutions, and guiding your property business toward long-term wealth.
Our CFO | Advisor
Raquel is a passionate business owner. Now, she is returning to her grassroots with a twist - guiding clients with her expertise as a CPA, she can advise your company as your trusted CFO and Advisor.
-
Raquel Deodanes, MS, CPA
Co-Founder✅ CPA with Real-World Experience – I help property managers stay profitable, tax-efficient, and cash flow positive.
✅ Tax Strategist – Former advisor at California’s revenue agency.
✅ Trusted by 4,000+ Businesses – Experience across CA, FL, TX, NV, and beyond.
✅ Real Estate Investor – I understand the financial realities of property management.
✅ Entrepreneur – I’ve built businesses and know the challenges you face.
Frequently Asked Questions
-
We diagnose financial inefficiencies, treat problems like poor cash flow or rising costs, and guide you to long-term financial health. That includes cleaning up your books, forecasting cash flow, optimizing operations, and helping you grow your portfolio with confidence — just like a doctor builds a custom care plan for a patient.
-
Bookkeepers record transactions. CPAs file your taxes. We connect the dots — helping you understand your numbers, strategically improve them, and make smarter decisions throughout the year. We work alongside your existing team to drive performance, not just compliance.
-
If you're unsure where your cash is going, struggling with rising costs, planning to scale, or just tired of reacting instead of planning — now is the right time. We help you get ahead of problems, not just clean up after them.
-
Clients typically see improved cash flow, cleaner books, higher NOI, better financial reporting, and a lot less stress at tax time. More importantly, you gain clarity, confidence, and control over your business — and a partner who helps you grow it.
Pricing
Painless, transparent pricing.
Let us take away your stress and give you back your time. Choose your perfect package today.
Base
-
Dedicated finance expert
-
Bookkeeping with accrual basis
-
Includes P&L, balance sheet, and cash flow statements
Core
-
Includes everything in Base, PLUS
-
Industry KPIs and financial ratios
-
Monthly virtual 1-hr meetings
-
Monthly rolling budget forecasts
Growth
-
Includes everything in Base, CORE
-
Budget vs. actuals variance analysis and review
-
Payroll and HR Platform