Expense reimbursements

[Guest jmbauer]

What happens if employer and employee disagree regarding whether a particular expense was adequately substantiated to qualify for accountable plan treatment?

[J Simmons]

What happens if employer and employee disagree regarding whether a particular expense was adequately substantiated to qualify for accountable plan treatment?

In essence, the EE has made a claim for benefits and the ER (I assume acting as the plan administrator) has denied it, because not adequately substantiated. If ERISA applies (and likely would unless this is a governmental ER), the EE should have the opportunity for a full and fair review by someone that is not subordinate to the person who made the initial claims denial. The regs on ERISA claims processing would apply to this situation. If the initial denial is confirmed by the reviewer, then the EE would have a right to have a federal court review the matter. That might invoke a semi-deferential review if the plan document gives the plan administrator unfettered discretion--I say semi-deferential because post-Glenn v MetLife the fact that the ER is deciding the claim and the one that would pay it is to be taken into account by the judge because of the inherent conflict of interest in making a claims decision under those circumstances.

[Guest jmbauer]

Thanks - I wasn't thinking about this arrangement as covered by ERISA. Also, amounts aren't reimbursed but rather billed directly to the employer, and if amounts aren't substantiated to the employer's satisfaction they are treated as wages.

[J Simmons]

Thanks - I wasn't thinking about this arrangement as covered by ERISA. Also, amounts aren't reimbursed but rather billed directly to the employer, and if amounts aren't substantiated to the employer's satisfaction they are treated as wages.

Whether the EE is reimbursed for having previously made payment to the health care provider, or the EE submits invoices for that health care and the ER pays the provider directly, really doesn't matter.

Nor does the fact that you pay amounts that are substantiated, treating such payments as wages, obviate the potential ERISA and claims procedure applicability.

If amounts that are not adequately substantiated are nevertheless paid--as taxable wages--that would perhaps make the payments of properly substantiated amounts also taxable income to the employees.

[Guest Sieve]

Typically, the term accountable plan is used in reference to an employee expense arrangement, where the employee pays and is reimbursed for expenses on behalf of the employer that are properly accounted for--such as auto & travel expenses. If that's what jmbauer is discussing, then it's not subject to ERISA.

In that case, if the employer will not accept the substantiation as sufficient, then the employer will include its payments to the third party (for employee business expenses) as W-2 compensation to the employee, and the employee may be eligible to deduct the underlying expenses on the employee's tax return as an employee business expense.

[Guest Eric.]

As Sieve noted, an Accountable Plan is not governed by ERISA. The Accountable Plan should have a Document specifying the required documentation as well as have a prescribed Reimbursement Form. It would be wise - though is not an IRS requirement - to have an internal procedure for disputes. The Document should make substantiation requirements clear enough that this wouldn't be necessary.

If the ER does NOT reimburse the EE, the EE can take a deduction on his Tax Return for unreimbursed employee business expenses.

If the ER takes the position that the substantiation is inadequate, but reimburses the EE anway with the understanding the reimbursment is not tax-exempt under the Accountable Plan because the substantiation requirements were not met, then the amount should be included in the EE's W2. Then, as Sieve noted, the EE can make a claim on his/her 1040 as well.

[jpod]

I thought that one of the requirements for an accountable plan was that there must be no reimbursement absent appropriate substantiation. This appears to be merely a blank check expense account.

[Guest Eric.]

jpod -

Yes, you are correct. However, if the employer does not want to reimburse from the account because of substantiation requirements, they can still reimburse the employee for the money they spent, but it would be taxable, not tax free as under the AP.

I for one mentioned it basically because the employer in this case has 3 choices:

1) reimburse under the Accountable Plan

2) reimburse to keep peace with the employee - but do so outside of the Accountable Plan.

3) don't reimburse