Should payments to an employee for business travel and other necessary business expenses be treated as supplemental wages for income and employment tax withholding purposes?

Author: Rena Pirsos, XpertHR Legal Editor

Yes. If the payments are made under a nonaccountable plan, they are treated as supplemental wages and subject to income, FICA (Social Security and Medicare) and FUTA (federal unemployment) taxes. An employer's payments are treated as paid under a nonaccountable plan if:

  • The employee is not required to, or does not, timely substantiate the expenses to the employer with receipts or other documentation;
  • The employer advances an amount to the employee for business expenses and the employee is not required to, or does not, return in timely manner any amount he or she does not use for business expenses;
  • The employer advances or pays an amount to the employee regardless of whether the employer reasonably expects the employee to have business expenses related to the employer's business; or
  • The employer pays the employee an amount as a reimbursement that the employer would have otherwise paid as wages.