What Are the Rules for Employee Travel Reimbursement?

Employee travel reimbursement is a system where employers repay workers for out-of-pocket expenses, ensuring they do not personally bear the cost of business-related travel. The goal is to make the employee financially whole. These arrangements are governed by specific tax regulations that determine how payments are treated for both the employee and the employer.

Qualifying for Tax-Free Reimbursement

For a travel reimbursement to be considered non-taxable income for an employee, the employer’s policy must qualify as an “accountable plan” under IRS regulations. This framework requires that three tests be met. If all conditions are satisfied, the reimbursement is excluded from the employee’s gross income, not reported on their Form W-2, and is exempt from employment taxes. This benefits the employee, who receives the money tax-free, and the employer, who can deduct the expenses.

The first requirement is that the expenses must have a business connection, meaning the costs were incurred while the employee was performing services for their employer. Personal expenses, such as for sightseeing tours or meals on non-business days during a trip that combines business with a vacation, are not reimbursable under this rule.

A second condition is that the employee must adequately account for the expenses to the employer within a reasonable period. The IRS provides safe harbors, such as requiring substantiation within 60 days after the expense was paid or incurred. Failure to provide this documentation in a timely manner can break the accountable plan rules.

The final test is that the employee must return any excess reimbursement or allowance within a reasonable period. If an employer provides a travel advance that exceeds the substantiated expenses, the employee cannot simply keep the difference. The IRS considers a reasonable period for returning excess funds to be within 120 days. If these three rules are not met, the arrangement is considered a “nonaccountable plan,” and all reimbursements are treated as taxable wages.

Common Reimbursable Travel Expenses

Transportation

Reimbursable transportation costs include travel between your home and a business destination, such as by airplane, train, or bus. When using a personal vehicle, employers reimburse employees based on a standard mileage rate set by the IRS, which for 2025 is 70 cents per mile. This rate is intended to cover gasoline, oil, maintenance, and depreciation. Other costs like tolls and parking fees are also reimbursed.

Lodging

The cost of lodging while away from home for business is a reimbursable expense, covering the nightly room rate and associated taxes. Employees are expected to choose reasonably priced accommodations, as expenses are not reimbursable if they are lavish or extravagant. If a trip is extended for personal reasons, only the lodging costs for the business portion can be reimbursed.

Meals

An employer can reimburse meal expenses using the actual cost method or a per diem rate. Using the actual cost method requires the employee to submit receipts for all meals. Alternatively, an employer can provide a per diem, which is a set daily allowance for meals and incidental expenses that does not require receipts. This rate varies by location and is updated by the General Services Administration (GSA).

Required Documentation and Substantiation

To meet the “adequately account for” requirement, employees must provide documentation to substantiate their travel expenses. IRS rules require that records prove four elements for each expense:

• The amount
• The time and date
• The place or location
• The specific business purpose

For example, a hotel bill shows the cost, dates, and location, and the employee would note the business reason for the trip.

Documentary evidence, such as a receipt, is required for any lodging expense and for any other single expense of $75 or more. For smaller expenses, a detailed log may be sufficient, though company policy might require receipts for all amounts. A credit card statement alone is not adequate substantiation because it does not provide an itemized breakdown of what was purchased.

When seeking reimbursement for using a personal vehicle, a detailed mileage log is necessary. A compliant log must include the dates of travel, the destination, the business purpose of the trip, and either the starting and ending odometer readings or the total number of miles driven.

The Reimbursement Submission Process

The submission process involves completing a company-specific expense report form, which can be a physical or digital document. The employee enters each expense, categorizes it, and attaches the corresponding digitized receipts and mileage logs as required by the policy.

Submission methods vary by company. Many organizations use dedicated expense management software for direct uploads, while others use email. In some smaller businesses, employees may still be required to submit physical copies of their reports and original receipts.

Once submitted, the expense report enters an approval workflow. The employee’s direct manager reviews the report to verify the business purpose and compliance with company policy. After approval, the report is forwarded to the accounting department for final review, and the employee receives payment via direct deposit or a separate check.