Expense reimbursements: 2 options for physician employers

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.

About the Author

Reed Tinsley CPA

This article is written by Reed Tinsley, a Houston, TX-based CPA with over 30 years of experience advising physicians and medical practices across Texas and the United States. Reed holds certifications as a Certified Valuation Analyst (CVA), Certified Healthcare Business Consultant (CHBC), and Certified Financial Planner (CFP), specializing exclusively in the healthcare sector. He is a published author, nationally recognized speaker, and trusted advisor to physicians on accounting & tax, practice management, and financial planning. Schedule a Free Consultation.