How Employees Can Claim Work-Related Expenses
It doesn’t matter which type of business that you operate or the industry that you are in. Every business is going to incur costs and expenses that could reduce overall taxable income. But, sometimes it’s the employees who have a business expense.
When that happens, how can employees claim those work-related expenses? There are no legal requirements for an employee to get reimbursed by their employee. But depending on where you’re located there could be other applicable laws to follow.
Have you used your own money for a business-related purchase? There might already be a reimbursement policy for covered expenses. The policy would outline the expenses an employee can claim and explain how to complete the process.
And when it comes to reimbursable expenses, they don’t count towards an employee's wages or income. A number of work-related expenses come from the need to travel. Things like fuel, hotel accommodation and mileage driven. That said, work-related expenses can also include certain supplies, mileage rates or meals.
Here’s What We’ll Cover:
How Can an Employee Claim Work-Related Expenses?
Let’s say you have to travel for work using your personal vehicle. While you’re on the road, you might have to fill up with gas, pay for parking or stop to eat along the way. Those would usually get considered to be reimbursable expenses.
The easiest way to organize the claim process is to have an accountable plan or expense reimbursement policy in place. This can help make sure there is no miscommunication and all the relevant details are easily found. There will be no confusion when it comes to which expenses are reimbursable and which ones aren’t.
As well, the actual expense method should outline the process that an employee needs to take to submit any work-related expense claims. It depends on the business and the policy, but some policies could get set up a little differently.
Some businesses offer per diem rates and allowances when it comes to things like meals or fuel. They could offer employees a lump sum payment before any travel to cover work-related expenses. But, things can always happen unexpectedly.
Other businesses could have their policies set up to have employees submit claims for expenses after they have occurred. This is usually done by submitting relevant receipts or documentation as proof of actual costs. Once the employer confirms the documentation, the employee will get reimbursed.
Conditions to Qualify for Work-Related Expenses
Not everything can get claimed as a work-related expense. Anything that has to do with personal use or a personal activity would not be able to get claimed, for example. To help determine if an employee's claim qualifies for reimbursement, it should meet a few conditions.
- Any expenses must be related to the tasks or responsibilities needed to do your job. Basically, the expenses need to occur while you are performing your duties as an employee.
- You need to be able to provide any receipts or proper documentation. These should include evidence of the total amount, the time, the place and the purpose of the expense.
- An employee must submit any work-related expense claims within a reasonable period of time after they happen
- The employee must pay back any reimbursed amounts that exceed the original amount. And any amounts that need to get returned must happen within a reasonable period of time.
What Work-Related Expenses Can an Employee Claim?
Some of the most common work-related expenses have to do with travel, meals, entertainment or business supplies. Here are a few more details about those common deductions.
The list of itemized deductions for travel expenses depends on your expense policy. But business travel usually includes things like fuel costs, hotel accommodation and meals. Travel expenses don’t typically cover an employee's commute to and from work.
Most employers reimburse employees who use personal vehicles with a standard mileage rate. Other actual car expenses could include vehicle depreciation and overall maintenance. Expenses for transportation or special transportation service for medical treatment are standard deductions.
Meals and Entertainment
If you entertain current or potential clients, then meals and entertainment could be a deductible expense. As long as the meals and entertainment have a clear business purpose then an employee can submit a claim. Most deductions are usually around 50%. But to help those affected most by the pandemic there is currently a full deduction for certain business meal expenses.
If you purchase any business supplies that are needed for work purposes then the cost can get reimbursed. If you are working from home, expenses like a desk, chair or laptop could be reimbursable. Or, if you are working out of the office and need to purchase supplies, those expenses can get reimbursed as well.
As long as the supplies are purchased for business purposes, then an employee can submit a claim. Check with your employer or take a look at your expense policy to find out which business supplies are eligible expenses.
It can sometimes be unavoidable to make a work-related purchase using your own money. It could have been a last-minute or unexpected situation. Or you could find yourself traveling for work frequently. The good news is that if you do have to use your own money, you can submit a claim for work-related expenses.
One of the first things you should do is take a look at your employee expense reimbursement policy. If you don’t have one, it might be worthwhile to create one. The policy will outline the list of deductible expenses that an employee can claim. It will also provide information as to what the expense entails and details on how to submit a claim.
Having an accountable plan keeps everything organized and ensures employees are properly compensated. If you still aren’t sure about how to claim work-related expenses, speak with a tax expert for more information.
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