QuickBooks Tip-Handling Employee Reimbursements for Expenses
When an employee uses his/her own money to pay for a business related expense it is money that they have loaned the company, and the company should account for those expenditures in the same manner in which they would if the company had made the expenditures themselves – in other words – those reimbursements should be correctly assigned to the appropriate expense or cost of goods sold accounts in QuickBooks.
As a bookkeeper handling reimbursement requests, not only do you need to make sure that the expenses are correctly recorded; you also need to make sure that the manner in which expense reimbursement requests from employees meet accountability standards by the IRS.
Every company should adopt an Accountable Plan for reimbursements. An accountable plan makes reimbursements non-taxable and is not reported on W-2, as long as the plan meets the following 3 IRS requirements:
- There must be a business purpose, meaning that the expense would be deductible if the company actually made the initial outlay of cash.
- The amount, time, use, and business purpose of the money spent must be substantiated within a “reasonable” amount of time; meaning that the employee should submit a written expense account detailing the money spent, the purpose of the expenditure, what job or customer the expenditure related to, and receipts that prove the expenditures.
- The employee must return the unsubstantiated amount within a reasonable period of time; meaning if the employee was given $1,000.00 but only provided documented receipts for $900.00, the remaining $100.00 would need to be returned to the company.
If these conditions are not, especially condition number 3 when an employee did not return the $100.00, you would then take that $100.00 and only then add it to payroll and withhold applicable taxes.
Recording the reimbursements in QuickBooks can be accomplished by using either the Write Checks window or the Enter Bills window, however, it is important to note that that John Doe the employee should also have a John Doe (Reimbursements) record in the Vendor List; using the John Doe record in the Employee List when issuing payroll and John Doe (Reimbursements) from the Vendor List when entering expenses for reimbursements.
Recording Reimbursements for Indirect Expenses, such as Telephone, Gas, Mileage, Purchase of Small Tools, Postage, etc.
When an expense report is submitted that includes any of the Indirect Expense items shown above, when you write the check or enter the bill, you will want to use the Expense Tab to record the amounts, if you will be including any of these costs on a customer invoice, click (check) the Billable option) and when you create the invoice, click on Time & Expenses to pull these costs onto the invoice. If these costs will not be billed to the customer, do not check the Billable column.
Recording Expenses for Job Materials or other Direct Job Related Costs
When an expense report is submitted that includes any of the Direct Expense items shown above, when you write the check or enter the bill, you will want to use the Items Tab to record the amounts, if you will be including any of these costs on a customer invoice, click (check) the Billable option) and when you create the invoice, click on Time & Expenses to pull these costs onto the invoice. If these costs will not be billed to the customer, do not check the Billable column.
This article provides you with basic guidelines for handling some types of reimbursements, however, it does not touch on handling reimbursements for travel, lodging, or meal reimbursements as they have far more stringent rules. Consult a local accounting professional for additional help.