Medical Reimbursements

As a result of the changes made under the 2017 Tax Cuts and Jobs Act (TCJA), there have been some adjustments that may affect employee reimbursements.

Tax treatment of employee’s reimbursed business expensed depends on type of reimbursement arrangement is in place. Employees will no longer be able to claim deductions on their individual tax returns UNLESS the employee falls into one of the following categories of employment: **

1. Armed Forces reservists

2. Qualified performing artists

3. Fee-basis state or local government officials

4. Employees with impairment-related work expenses

Types of Reimbursement Plans

Accountable Plan

This type of plan reimburses employees or is given an allowance to cover expenses, amounts paid under accountable plans are not shown on the employee’s W-2. It is considered accountable if ALL the following conditions are met:

1. There must be business conditions for the expenses

2. The employee must either substantiate or be deemed to have substantiated the expenses i.e. show receipts/invoices

3. The employee must return to the employer the amounts in excess of the substantiated expenses within a reasonable time

Non-Accountable Plan

Reimbursements under this plan are included in the employee’s income, therefore it appears on their W-2 form. Unreimbursed expenses can be only deducted by the employee if it meets one of the following categories stated earlier. **

As an employer, it’s a good idea to put your reimbursement plans in writing in the employee policy and procedures manual!