Taxable Expenses Questions
What types of reimbursed expenses are taxable to me?
Reimbursement for per diem for a trip for which there was no overnight stay, or
Reimbursement for expenses that are submitted more than 60 days from the date of trip completion; or, for non-travel expenses, the date of the expense. (Note: Reimbursement for expenses that are submitted more than 120 days from the date the expense was incurred are not reimbursable and will be returned unprocessed.)
Why are they taxable to me?
These types of expense reimbursements are deemed taxable under Internal Revenue Code. (IRS Publication 463)
What backup documentation is required to initiate a request for travel and business expense reimbursement?
All business expense reimbursements require a complete, clear business purpose substantiated by original itemized receipts that show:
- Proof of payment
- What was purchased
- Name and location of vendor
- Date of purchase
- List of attendees and their affiliation to the University (can be entered
on the electronic form)
Receipts are not required for mileage or your meals but you do need to provide personal vehicle license number for mileage reimbursement and departure and return times for per diem. (Receipts ARE required if you are requesting reimbursement for meals for anyone besides yourself.)
If a purchase was made for travel expense using a P-Card, keep the original on file at the Department and submit a copy of the P-Card purchase with your travel documentation.
What taxes do I pay on taxable reimbursed expenses?
Medicare (labeled on your pay stub as Fed MED/EE)
Social Security (labeled on your pay stub as Fed OASDI/EE)
Federal income tax (labeled on your pay stub as Fed Withholding)
State income tax (labeled on your pay stub as ID Withholding)
How will this look on my paycheck?
The amount that was reimbursed to you that is taxable will appear with a label of *’TX Travel’. This amount is not being paid to you on the paycheck (you already received the reimbursement by the time it appears on your paycheck) nor is it a deduction from your pay. The amount is being added only to your taxable gross pay so that taxes may be calculated. View Example Pay Stub
Gross pay and taxable gross pay are not always equal to each other. For example, if you are an hourly employee who participates in the University’s health insurance plan, your gross pay is your hourly rate multiplied by the number of hours for which you are being paid. However health insurance premiums are not taxable so the premium amount is subtracted from your gross pay to reach your taxable gross pay.
How am I taxed on taxable reimbursed expenses?
- Accounts Payable receives your Expense Report and backup documentation, reviews the Expense Report and flags taxable items.
- Your reimbursement is processed.
- Once a month, Accounts Payable will submit taxable expenses to the Tax Reporting Department for review. Upon completion of review, the information will be submitted to Payroll.
- Payroll adds the taxable amounts to your next pay check. The amounts appear with a label of ‘TX Travel’ on your pay stub.
This process allows you to receive your reimbursement before you pay any taxes on it.
How can I avoid paying taxes on reimbursed expenses?
Do not request per diem reimbursement for a trip with no overnight stay. (Please note: this answer relates specifically to how you can avoid paying taxes on this type of expense. The only way to avoid paying taxes on this type of expense is to not request reimbursement for it. Our intent is to inform you of the tax implications of the reimbursement, not to suggest you or your department change your expense reimbursement parameters.)
Submit requests for reimbursement of expenses no later than 60 days from the date of the trip completion; or, for non-travel expenses, the date of the purchase.
What date is used to determine if I have submitted my expense reimbursement request before the end of 60 days?
I submitted my receipts to the person who completes my Expense Report (ER) within the 60 days but that person did not complete the report within the 60 days. What do I do?
You and/or your department may set personal/departmental internal deadlines less than the 60 day maximum to give those who complete your ERs adequate time to accomplish the data entry. You might consider 45 days as an internal deadline. This would allow 15 days to complete the data entry. Even with internal deadlines in place, there will be rare occasions when something goes wrong and your ER is not completed within the 60 day maximum even though you submitted your receipts on time.
If this should occur, your department may write a memo that states the day you submitted your reimbursement receipts/documentation and why the ER was not completed within the 60 days. For example, “My travel ended 8/18/10, and I submitted my receipts on 9/24/10- However our staff person was not at work from 9/25/10 through 10/24/10 due to illness.” The memo should be signed by your department head and staff person to certify the day s/he or she received the receipts. Accounts Payable will retain the memo as evidence to the IRS that the traveler made an active and reasonable attempt to comply with the 60 day maximum. While we cannot guarantee the IRS will accept the memo as reasonable, we will process the reimbursement as non-taxable. If the IRS later determines that the reimbursement was taxable, the traveler will be responsible for the tax, interest, and any penalties.
We strongly encourage you and your department to develop a process for reimbursements that assures expenses are processed within the 60 day maximum and to establish a back-up plan for those times when the staff person who regularly completes ER forms is unavailable.
I have three trips back to back. I’ll only be in town on one Saturday between Trip 1 and Trip 2. I’ll be in town for three days between Trip 2 and Trip 3 but I have meetings all day for all three days. When I have completed Trip 3 and am finally back in town, it will already be more than 60 days past the end of Trip 1. What do I do?
Consider creating two envelopes addressed to the staff person who completes your ER. As you accumulate receipts for Trip 1, put them in one of the envelopes. At the end of Trip 1, mail the envelope to the office and ask the staff person to begin preparation of your ER. Do the same for the second trip. You’ll be back in town at the end of Trip 3 and can personally deliver the receipts for that trip.