---
title: "Reimbursement"
description: "Reimbursement is how a company pays employees back for business costs. The accountable plan rules, the 60 and 120 day safe harbors and when it becomes wages."
canonical: https://engine.com/glossary/reimbursement
updated: 2026-11-02
author: "Engine Editorial"
---

# Reimbursement

Reimbursement is an employer paying an employee back for business expenses the employee paid upfront, such as a hotel, meal or mileage, after the employee submits proof of the expense.

Also called: expense reimbursement, employee expense reimbursement

Not to be confused with: a per diem, which pays a fixed daily amount instead of the exact cost.

Updated November 2, 2026 by Engine Editorial

## What is employee reimbursement?

Reimbursement is the company paying back money an employee spent on work. This cheat sheet covers how the IRS sorts reimbursement plans, the deadlines that keep payments tax-free and where reimbursement goes wrong. The detail is further down.

### How to think about it

- **The plan decides the tax.** Amounts paid under an accountable plan aren't wages. Amounts paid under a nonaccountable plan are wages, taxed like other pay.
- **Three rules make a plan accountable.** The expense has to be for the employer's business, the employee has to substantiate it within a reasonable time and any excess has to be returned.
- **60 and 120 days are safe.** Accounting for expenses within 60 days and returning excess within 120 days counts as a reasonable time under IRS rules.
- **Fixed allowances can count.** A per diem or mileage allowance at or below the federal rate counts as accounted for, as long as the business purpose and trip details are documented.

### Where it goes wrong

- **Advances nobody settles.** If an employee doesn't account for an advance or return the unused part in time, the excess is treated as wages.
- **Paying regardless of expenses.** Money paid whether or not the employee is expected to have business expenses is a nonaccountable payment, so it's wages.
- **Reimbursing nondeductible costs.** Paying back costs that aren't deductible business expenses, like meals for working late at the office, is treated as nonaccountable pay.
- **Never claiming it.** An employee who is entitled to a reimbursement but doesn't claim it can't deduct the expense instead.

## Accountable vs. nonaccountable plan

| | Accountable plan | Nonaccountable plan |
| --- | --- | --- |
| What the employee does | Substantiates expenses and returns any excess within a reasonable time | Isn't required to substantiate or return unused amounts |
| Tax treatment | Not wages, no income, Social Security, Medicare or FUTA tax | Wages, taxed as supplemental wages |
| On the W-2 | Not in box 1 | Added to pay in box 1 |

## How it works on Engine

With [Direct Bill](https://engine.com/features/direct-bill), Engine extends a line of credit, pays eligible hotels and invoices the company in arrears, so travelers never front the room charge and there's no room to reimburse. Meals, ground transport and incidentals still run through expense reports, so direct billing shrinks what employees front rather than ending reimbursement.

## Take the hotel off the expense report

With Direct Bill on Engine, Engine pays eligible hotels and bills your company in arrears on one consolidated invoice, so travelers never front the room. Free to use.

[Get started](https://engine.com/sign-up)

## Questions

### Is an expense reimbursement taxable?

Not under an accountable plan. Those amounts aren't wages and aren't subject to income, Social Security, Medicare or FUTA taxes. Under a nonaccountable plan, the reimbursement is treated as wages.

### How long do employees have to submit expenses for reimbursement?

The IRS asks for a reasonable period. Accounting for expenses within 60 days and returning any excess within 120 days is treated as reasonable, as is responding within 120 days to a statement the employer sends at least quarterly.

### What proof do you need for a reimbursement?

Generally documentary evidence such as receipts, canceled checks or bills showing the amount, date, place and essential character of the expense. Receipts aren't needed for expenses other than lodging that are under $75.

### Can employees deduct business expenses that weren't reimbursed?

Most can't. Unreimbursed employee expenses fall under 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.

## Go deeper

- [Expense reimbursement policy guide](https://engine.com/blog/reimbursement-policy)
- [Engine Direct Bill](https://engine.com/features/direct-bill)
- [Per diem](https://engine.com/glossary/per-diem)
- [Reimbursable expense](https://engine.com/glossary/reimbursable-expense)

## Sources

1. Internal Revenue Service, "Publication 15 (2026), (Circular E), Employer's Tax Guide," https://www.irs.gov/publications/p15, accessed November 2, 2026.
2. Internal Revenue Service, "Publication 463 (2025), Travel, Gift, and Car Expenses," https://www.irs.gov/publications/p463, accessed November 2, 2026.
3. Engine, "Meal Reimbursement Rules, Rates & Best Practices," https://engine.com/blog/meal-reimbursement-rules, accessed November 2, 2026.
4. Engine, "Best practices for crafting an expense reimbursement policy," https://engine.com/blog/reimbursement-policy, accessed November 2, 2026.
5. Engine, "10 Tips to Reduce Employee Travel Costs," https://engine.com/blog/travel-expense-reimbursement, accessed November 2, 2026.
6. Engine, "How to Build a T&E Policy: Best Practices," https://engine.com/blog/te-expenses, accessed November 2, 2026.
7. Engine, "42% of Small-Business Travelers Pay Out of Pocket for Work Trips," https://engine.com/blog/out-of-pocket-business-travel-expenses, accessed November 2, 2026.
8. Engine, "Direct Bill for Company Hotel Travel," https://engine.com/features/direct-bill, accessed November 2, 2026.