Question

For reimbursement or allowance payment to be considered an accountable plan and therefore not be considered wages or subject to Social Security, identify and discuss three requirements needed.

a. Social Security

b. Medicare

Answer 1

In Accountable plan the reimbursement would be considered non-taxable to the Employee. The expenses reimbursed in the Accountable Plan are not considered wages and are not subject to withholding of tax and payment of income, social security, Medicare, and FUTA taxes. However, if any of the three requirements are not met, the reimbursement or allowance is considered income and are thus subject to applicable taxes.

Further, in order to be eligible to continue with the accountable plan the following criteria should be met:

• The Employee must have paid or incurred deductible expenses while performing services.
• The Employee must substantiate these expenses to you within a reasonable period usually permitted by IRS within 60 days.
• The Employee must return any amounts more than substantiated expenses within a reasonable period, usually permitted by IRS within 120 days.

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