Expenditures: Expenses and Reimbursement Under the Accountable Plan

Scope

All staff, faculty, students and non-employees incurring business expenses in the conduct of official Indiana University activities.

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Policy Statement

An accountable plan is an organization’s documented plan for reimbursement and/or substantiation of certain business expenses made by employees and non-employees. These include approved payments for expenses such as employee and non-employee travel, payments made from departmental faculty research accounts, procurement card and travel expenditures, as well as allowable out-of-pocket expenses related to official university business. In order to qualify under the accountable plan, payments for expenses must meet the three requirements of IRS Regulation §1.62-2:

1. Business connection requirement – Expenditures, including advances, allowances or reimbursements must have a clear university business purpose and are only permitted when incurred by the individual in the course of conducting university business.
2. Substantiation requirement - The individual must substantiate each out-of-pocket business expense with a detailed record within a reasonable period of time. This includes:
   1. The equivalent of the original receipt(s) with amount of each business expenditure
   2. Dates of expenditure and location, if applicable
   3. Business purpose

Return of funds requirement - If an advance payment for a business-related expense was received by an individual from the university, the individual must substantiate any amount expended within a reasonable period of time and return any excess funds to IU that exceed the amount substantiated.

 If the requirements of paragraphs 1, 2, and 3 of this section have been met as to an expenditure, that expenditure is considered to fall under the accountable plan rules and will be excluded from the individual's gross income. When the arrangement does not satisfy one or more of the requirements listed, the expense may still be paid by the university; however, it will be treated under the nonaccountable plan, as defined by the IRS and will become taxable to the individual.

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Reason for Policy

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Procedures

• 0-60 Days Timeline: The University has generally adopted the IRS Safe Harbor rule of 60 calendar-days, as a reasonable period of time to substantiate business expenses. Each business expense must be substantiated, where required, with the equivalent original receipt and reconciled in the appropriate accounts payable, procurement-card, or travel system within 60 calendar-days of the later of the date the expense was paid/charged or the return date of the trip. 
• 61-120 Days Timeline: Amounts that are substantiated beyond the 60 calendar-days are generally considered to fall under the nonaccountable plan Nonaccountable plan reimbursements may only be paid with approval, in writing, from the department’s respective Vice President, Provost, Chancellor, or designee. These business expenses will generally be included in the employee’s gross income, must be reported as wages or other compensation on the employee’s Form W-2, and are subject to withholding and payment of employment taxes. Any payments made to non-employees falling under the nonaccountable plan will be considered taxable compensation and reportable on an applicable IRS tax form if they meet the current reporting threshold.
• 121+ Days Timeline: The university generally does not reimburse requests that fail to meet the business expense requirement or those that remain unsubstantiated after 120 calendar-days. If the time period for an unsubstantiated procurement card purchase exceeds 120 calendar-days, the procurement card holder and/or department may be subject to further sanctions at the discretion of the Office of Procurement Services.
• Payments to Students: Expenses that primarily benefit a student’s personal education are considered scholarships or fellowships and are not a business expense. All such payments to students must follow the Student Payment Guidelines.

  See IU Accounting Standard: Accountable Plan Expenses and Reimbursement for further guidance and examples.

   

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Definitions

Accountable Plan: A plan for reimbursing employees and non-employees for business expenses. Under this plan, reimbursement for a business expense is not included in an individual’s personal income. Individuals are required to substantiate business expenses and return any excess reimbursement within a reasonable period of time. If any requirements of the accountable plan policy are not met, the nonaccountable plan rules apply.

Allowable Expense: A business expense that is permissible under all other IU policies including, but not limited to, those listed below in the related information section such as Hospitality FIN-ACC-50.

Business Expense: An expense incurred in achieving the university's mission or directly related to the conduct of official university business and must be:

• necessary

• appropriate to the activity

• reasonable in amount

• serve a bona fide university purpose

An expense that serves primarily to furnish the individual with a social or personal benefit is not a business expense. Expenses that primarily benefit a student’s personal education are considered scholarships or fellowships and are not a business expense. These expenses do not meet the accountable plan criteria.  Such payments to students must follow the Student Payment Guidelines.

Equivalent Original Receipt: It is IU’s standard practice that receipt documentation, where required, is submitted electronically for supporting documentation. The submission attests that the submitted document is the equivalent of original receipt documentation and that the same paperwork will not be submitted for any other reimbursement or disbursement.

Nonaccountable Plan: An arrangement that does not meet one or more of the three requirements listed earlier under the accountable plan (business connection, substantiation, return of funds) or generally an expense that is substantiated and reconciled beyond the 60-day IRS Safe Harbor limit. Amounts paid under this arrangement are included in the employee’s gross income, must be reported as wages or other compensation on the employee’s Form W-2, and are subject to withholding and payment of employment taxes. Amounts for non-employees are reportable on an applicable IRS tax form if they meet the current reporting threshold.

Non-employees: Individuals who are not employed by IU such as independent contractors, volunteers, and non-employee students.

Reasonable Period of Time: IU generally follows the IRS Safe Harbor rule of 60 calendar-days to establish what constitutes a “reasonable time” for purposes of this policy. Amounts not meeting these guidelines are considered taxable income to the individual.

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Additional Contacts

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History

This is a new policy as of May 12, 2016.

This policy was updated in July 2024.

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