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3) Your employer does not use adequate ac- not apply to you, do not complete Form 2106 or Accountable Plans
counting procedures to verify expense ac- 2106-EZ. Instead, claim the amount of your counts.
deductible gifts directly on line 20 of Schedule A To be an accountable plan, your employer's 4) You are related to your employer, as de(Form 1040).
reimbursement or allowance arrangement must
include all three of the following rules. fined earlier under Who cannot use the
Statutory employees. If you received a standard meal allowance.
Form W-2 and the “Statutory employee” box in 1) Your expenses must have a business conSee the next section, How To Report, for a
box 13 was checked, you report your income nection — that is, you must have paid or discussion of reimbursements, adequate ac
and expenses related to that income on Sched- incurred deductible expenses while per
ule C or C-EZ (Form 1040). Do not complete counting, and nonaccountable plans.
forming services as an employee of your Form 2106 or 2106-EZ.
employer. Additional information. Chapter 5 of Publi- Statutory employees include full-time life incation 463 has more information on recordkeep- surance salespersons, certain agent or commis
2) You must adequately account to your eming, including examples. sioni drivers, traveling salespersons, and certain
ployer for these expenses within a reasonhomeworkers.
able period of time. If you are entitled to a reimbursement
3) You must return any excess reimbursefrom your employer but you do not
ment or allowance within a reasonable peCAUTION
riod of time.
claim it, you cannot claim a deduction
for the expenses to which that unclaimed reim-
See Adequate Accounting and Returning This section explains where and how to report bursement applies.
Excess Reimbursements, later. the expenses discussed in this chapter. It dis
An excess reimbursement or allowance is cusses reimbursements and how to treat them Reimbursement for personal expenses. If under accountable and nonaccountable plans. It your employer reimburses you for nondeduct
any amount you are paid that is more than the
business-related expenses that you adequately also explains rules for fee-basis officials, certain ible personal expenses, such as for vacation
accounted for to your employer. performing artists, Armed Forces reservists, and trips, your employer must report the reimburse
The definition of reasonable period of time certain disabled employees. This section ends ment as wage income in box 1 of your Form
depends on the facts and circumstances of your with an illustration of how to report travel, enterW-2. You cannot deduct personal expenses.
situation. However, regardless of the facts and tainment, gift, and car expenses on Form
circumstances of your situation, actions that 2106-EZ. Reimbursements
take place within the times specified in the folSelf-employed. You must report your income
lowing list will be treated as taking place within a and expenses on Schedule C or C-EZ (Form
This section explains what to do when you re- reasonable period of time. 1040) if you are a sole proprietor, or on Sched
ceive an advance or are reimbursed for any of ule F (Form 1040) if you are a farmer. You do not
the employee business expenses discussed in 1) You receive an advance within 30 days of use Form 2106 or 2106-EZ. See your form this chapter.
the time you have an expense. instructions for information on how to complete
If you received an advance, allowance, or
2) You adequately account for your expenses your tax return. You can also find information in reimbursement for your expenses, how you re
within 60 days after they were paid or inPublication 535 if you are a sole proprietor, or in port this amount and your expenses depends on
curred. Publication 225, Farmer's Tax Guide, if you are
whether the reimbursement was paid to you a farmer.
under an accountable plan or a nonaccountable 3) You return any excess reimbursement plan.
within 120 days after the expense was Both self-employed and an employee. If
This section explains the two types of plans, paid or incurred. you are both self-employed and an employee, how per diem and car allowances simplify provyou must keep separate records for each busi
4) You are given a periodic statement (at ing the amount of your expenses, and the tax ness activity. Report your business expenses for
least quarterly) that asks you to either retreatment of your reimbursements and exself-employment on Schedule C, C-EZ, or F
turn or adequately account for outstanding penses. (Form 1040), as discussed earlier. Report your
advances and you comply within 120 days No reimbursement. You are not reimbursed of the statement. business expenses for your work as an employee on Form 2106 or 2106-EZ, as discussed
or given an allowance for your expenses if you next. are paid a salary or commission with the under
Employee meets accountable plan rules. If standing that you will pay your own expenses. In Employees. If you are an employee, you gen
you meet the three rules for accountable plans, this situation, you have no reimbursement or erally must complete Form 2106 to deduct your
your employer should not include any reimallowance arrangement, and you do not have to
bursements in your income in box 1 of your travel, transportation, and entertainment exread this section on reimbursements. Instead,
Form W-2. If your expenses equal your reimpenses. However, you can use the shorter Form
see Completing Forms 2106 and 2106-EZ, 2106-EZ instead of Form 2106 if you meet all of
bursement, you do not complete Form 2106. later, for information on completing your tax re- You have no deduction since your expenses the following conditions. turn.
and reimbursement are equal. 1) You are an employee deducting expenses Reimbursement, allowance, or advance. A
If your employer included reimburseattributable to your job.
reimbursement or other expense allowance ar- TIP ments in box 1 of your Form W-2 and
rangement is a system or plan that an employer 2) You were not reimbursed by your em
you meet all three rules for accountauses to pay, substantiate, and recover the exployer for your expenses (amounts in
ble plans, ask your employer for a corrected penses, advances, reimbursements, and cluded in box 1 of your Form W-2 are not
Form W-2. amounts charged to the employer for employee considered reimbursements). business expenses. Arrangements include per
Accountable plan rules not met. Even 3) If you are claiming car expenses, you use, diem and car allowances.
though you are reimbursed under an accountathe standard mileage rate.
A per diem allowance is a fixed amount of daily reimbursement your employer gives you
ble plan, some of your expenses may not meet For more information on how to report your
all three rules. Those expenses that fail to meet for your lodging, meal, and incidental expenses expenses on Forms 2106 and 2106-EZ, see
all three rules for accountable plans are treated when you are away from home on business. Completing Forms 2106 and 2106-EZ, later.
as having been reimbursed under a nonac(The term “incidental expenses" is defined ear
countable plan (discussed later). Gifts. If you did not receive any reimburse- lier under Meals.) A car allowance is an amount ments (or the reimbursements were all included your employer gives you for the business use of Reimbursement of nondeductible exin box 1 of your Form W-2), the only business your car.
penses. You may be reimbursed under your expense you are claiming is for gifts, and the Your employer should tell you what method employer's accountable plan for expenses rerules for certain individuals (such as performing of reimbursement is used and what records you lated to that employer's business, some of which artists), discussed later under Special Rules, do must provide.
are deductible as employee business expenses