Like any business, reimbursements to physician medical practice employees for business-related overnight lodging and meals are generally handled in 2 ways: 1. under an accountable plan or 2. under a nonaccountable plan.
1. Accountable plans. To be nontaxable to the employee under an accountable plan and not reported on the W-2, the advance or reimbursement must meet 3 IRS conditions:
· there must be a business purpose (that is, the expense would be deductible if claimed on the employee’s personal tax return);
· the amount, time, use, and business purpose of the advance or reimbursement must be substantiated within a “reasonable” time; and
· the employee must return the unsubstantiated amount within a reasonable period of time.
If these 3 conditions are not met, apply FITW, FICA and FUTA only to portions unsubstantiated or unreturned.
2. Nonaccountable plans do not have the 3 requirements for an accountable plan, so 100% of advances and reimbursements are subject to FITW, FICA and FUTA and appear on the employee’s W-2. In other words, the employee will have to take any possible business expense deductions on his or her tax return.