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Compliance with Accountable Plan Requirements

The University has established policies (The University Administrative Policies and Procedures Manual, or “UAPPM”), in part to be able to satisfy requirements of the Internal Revenue Service in regard to having an “accountable plan” in place, which allows for providing reimbursement for travel or other business-related expenses without including such payments as income on an employee’s W-2, and withholding applicable taxes from the reimbursement.  The UAPPM policies that specifically address employee reimbursements are 4030 (Travel) and 4320 (Purchasing Goods off Campus).  Also, click here to view IRS Publication 463 “Travel, Entertainment, Gift, and Car Expenses”, which addresses the accountable plan rules (see page 30).

The information listed below summarizes what is stated in Publication 463 regarding the requirements for an “accountable plan”.  The IRS has indicated that an employer’s reimbursement arrangement must include ALL of the following rules in order to be considered an “accountable plan”:

  1. The expenses must have a business connection (UNM “business purpose”).
    1. This means the expenses must have been incurred while performing services as an employee (or student) of UNM, and must benefit the University.
  2. The expenses must be adequately accounted for within a “reasonable period of time”.
    1. The IRS has determined that the following will meet the “reasonable period of time” requirement:
      1. The expenses are adequately accounted for within 60 days after they were paid or incurred;
      2. Any excess reimbursement is returned within 120 days after the expense was paid or incurred.
  3. Any excess reimbursement or allowance must be returned within a reasonable period of time.

The UNM policies noted above detail the specific guidelines and requirements that UNM has established regarding reimbursement of travel expenses, and other expenses incurred by an employee on behalf of the University.  The provisions set out in these policies (specifically, the requirement of a UNM business purpose, and the requirement to submit requests for reimbursement within a specific time frame) substantiate that the University’s reimbursement arrangements meet the requirements of an accountable plan.

However, even though the University has a documented accountable plan, per IRS regulations, any and all reimbursements that do not meet ALL THREE rules noted above are considered as being reimbursed under a “non-accountable plan”.  The University must include in box 1 of an employee’s W-2, as additional “wages salary or other compensation” all expenses reimbursed under a non-accountable plan.  In addition, the employee must have appropriate taxes withheld on this additional compensation, and the University will also incur and must pay the applicable employer payroll taxes.  Due
to this additional burden on both the employee and the University, it is important that that reimbursement requests be submitted in accordance with both UNM policy, and the IRS accountable plan rules.

The University runs the risk of having our accountable plan disallowed by the IRS if we cannot show that we are in compliance with the guidelines.  If this were to happen, all reimbursements would be considered additional compensation, and employees would have to claim business deductions on their personal tax returns in order to receive any applicable tax benefit.  The University does not provide assistance or advice in the preparation of personal tax returns.

Therefore, any and all reimbursement payments that are made, that do not meet the “accountable plan” rules, will be included on the employee’s W-2 as additional compensation in Box 1, and applicable taxes will be withheld on the employee’s next paycheck following the reimbursement.

In addition, and of primary importance, all current provisions of UNM policy regarding reimbursements should be met.  Any reimbursement requests that do not meet the provisions of the applicable UNM policies are subject to disapproval.  As with any request, Financial Services may also require the submission of additional, explanatory information or documentation before processing the request.

Specific issues:

  1. Adequate accounting within 60 days:
    • For accountable plan purposes, the adequate accounting within 60 days requirement will generally be considered to have been met if:
      • Documentation of the expense to be reimbursed (receipts, etc.), is  submitted in Chrome River and approved by all applicable departmental personnel within 60 calendar days after the end of travel, or after the date a purchase of goods was made.
  1. Valid UNM business purpose:

      • Occasionally, exceptions to policy will be granted by the President, Vice Presidents, Deans, Directors, Department Heads, etc.
      • Such exceptions generally indicate that the transaction in question does not otherwise have a valid University business purpose.
      • Any reimbursements authorized and approved, that do not have a valid University business purpose, will be reported to Payroll as additional taxable compensation.
  2. Mileage logs, multiple small, miscellaneous expenses, etc.:

    • All employees that regularly incur these types of expenses are expected to turn in receipts or mileage logs on a MONTHLY basis. 
      • DO NOT submit quarterly, annually, etc.

IRS Publication 463 also indicates that reimbursements to independent contractors require an adequate accounting to the “client” (see page 33).  Although a specific time frame is not referenced, as with employees, UNM also follows this requirement.  For any expenses incurred by independent contractors and reimbursed by the University, in which an adequate accounting is not received within 180 calendar days, the independent contractor will be issued a 1099-MISC, provided the total amount of such reimbursements, combined with any other 1099-reportable payments made by the University to the independent contractor, exceed the published 1099 reporting threshold for the calendar year in which the payment was made.