What is an out-of-pocket expense?
An out-of-pocket expense is money an employee spends on work before the company pays it back. This cheat sheet covers why it happens, what to check and how companies reduce it. The detail is further down.
How to think about it
- It's a loan nobody negotiated. An employee who fronts travel costs is lending the employer money, interest-free, for however long the reimbursement takes.
- The hotel is the usual cause. Someone has to put a card down when the hotel asks for one at check-in. At companies with no central way to pay, that's usually the traveler.
- It isn't always paid back. In a June 2026 Morning Brew and Engine survey, 26% of travelers at small and midsize businesses said they weren't fully reimbursed, and 37% said they waited too long.
- Finance often can't see it. Spending on an employee's own account doesn't show up in the company's books. In the same survey, 21% of small and midsize business admins had no idea what their employees spent out of pocket on travel.
What to check
- Who pays the hotel. With direct billing, the hotel bills the company, so the room never has to be fronted or paid back.
- The card hold. Hotels place a hold for incidentals at check-in, usually $25 to $200 a night. On a debit card, it can last up to 14 business days.
- What's still left. Direct billing doesn't cover the whole trip. Meals, ground transport and incidentals still run through expense reports.
- Whether the employee files. An employee who is entitled to a reimbursement but doesn't claim it can't deduct the expense instead.
Ways to pay for a work trip
| Payment | Who pays first | What follows |
|---|---|---|
| Out of pocket | The employee, on a personal card | An expense report, then a reimbursement |
| Corporate card | The company card, within its spending limits | No wait for a reimbursement |
| Direct billing | The company, on the hotel's bill | Nothing to reimburse for the room |
How it works on Engine
With Direct Bill, Engine extends a line of credit, pays eligible hotels and invoices the company in arrears, so travelers never front the room charge. Incidentals Coverage is an add-on for eligible Direct Bill stays that lets travelers check in without presenting a personal card. Covered categories and limits vary by property.
Questions
How much do employees spend out of pocket on business travel?
In a June 2026 Morning Brew and Engine survey of 439 people, 48% of business travelers said they spend $1,000 or more of their own money on work travel in a year.
Can employees deduct out-of-pocket business expenses that weren't reimbursed?
Most can't. Unreimbursed employee travel expenses are miscellaneous itemized deductions, which are suspended for tax years beginning after 2017. Armed Forces reservists, qualified performing artists and fee-basis state or local government officials are exceptions.
Are out-of-pocket expenses reimbursed tax-free?
Yes, when the employer pays them under an accountable plan, which requires a business connection, timely proof of the expense and returning any excess. Those payments aren't wages.
How can a company stop employees paying for travel up front?
Pay the hotel directly. When the hotel bills the company instead of the guest, the traveler never pays for the room and there's nothing to reimburse.
Sources
- Engine, 42% of Small-Business Travelers Pay Out of Pocket for Work Trips, accessed November 2, 2026.
- Engine, Hotel Incidentals: What They Are, How Much Hotels Hold, and How to Avoid the Charges, accessed November 2, 2026.
- Engine, How to Build a T&E Policy: Best Practices, accessed November 2, 2026.
- Engine, Meal Reimbursement Rules, Rates & Best Practices, accessed November 2, 2026.
- Internal Revenue Service, Publication 463 (2025), Travel, Gift, and Car Expenses, accessed November 2, 2026.
- Internal Revenue Service, Publication 15 (2026), (Circular E), Employer's Tax Guide, accessed November 2, 2026.
- Engine, Direct Bill for Company Hotel Travel, accessed November 2, 2026.
- Engine, Hotel Incidentals Coverage, accessed November 2, 2026.