Accountable Plans for S-Corps

January 2024

If you have an S-Corp and don’t have an Accountable Plan (or AP), keep reading.

An AP is a specific type of allowable fringe benefit (Section 62(c) of IRC) by employers for their employees which allows tax-free reimbursement for certain expenses. This means you as the employee, can be reimbursed for expenses (eg 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 qualifications.

There are three requirements for an AP reimbursements:

  1. 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.
  2. Substantiation: The employee must substantiate the amount of the expenses within a reasonable period (minimum quarterly), eg provide a mileage log, provide receipts, provide breakdown of home office-use & utilities
  3. 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 AP’s usually utilized?

Most commonly - 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 verse 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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