The company has a credit card policy which is not enforced. Actually it does not mention who has to enforce it. Constantly, the employees submit their expense reports and receipts later than 60-90 days after amounts paid with credit cards. Sometimes, they use the cards for personal, but they pay back the company. When the monthly credit cards statements arrive, the company pays them in full. In my view, the expenses paid with company's credit card should follow the rules for 'advances', be properly and timely documented. Question: if the expenses paid with company's credit cards are not substantiated or are substantiated later than 60 days after paid, will they become taxable compensation to the credit cardholders?
Are the expenses paid with company's credit card taxable compensation if documented later than 60 days?
Answers
The onus is actually on the employee to turn in receipts and to substantiate the expense as a legitimate business expense. If an expense is incurred by an employee on a company credit card and it is not substantiated by receipts and business purpose, that is compensation to the employee. Two other notes:
1. Expect that your executive officers' expenses will be audited in detail if you get an IRS audit. Company credit cards will be scrutinized.
2. From an audit and internal control perspective I would strictly prohibit ANY usage of a company credit card for personal reasons. Your current
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Great information. Thank you.
Anonymously report this to the IRS on their website. They'll institute an audit and you will not longer have to fight the know it all owners and big shots who don't think they have to worry about this. And, their anger will be directed at the IRS. They won't get a chance to "shoot the messenger" for trying to institute effective change.
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Thank you. The executive officers were just misled by a wrong person in a wrong job. I try to make them understand how important is to have the expenses timely documented.
The IRS has actually stated that for expense reimbursements and advances to be non-taxable to the employee, they must be accounted for and any excess advance must be returned within a "reasonable time period". Reasonable has not been explicitly stated but the guidance has been 60 days. It's never been clear whether and how this could actually be enforced but it is certainly something you can utilize in setting your process and rules - no employee will want these things showing up on their W2.
Credit cards directly billed to the company are often an issue since the employees have no skin in the game (and they tend to be in the hands of senior executives). It is a real Finance painpoint but there are ways to make the reconciliation much easier.
Thank you very much.
1.Expense reimbursements and Purchasing-Card (P-card) documentation are due within 30 days of the expense or receipt of the statement. Expense reimbursements and P-card documentation received 60 days or more after the expense is incurred or statement received will be treated as a taxable reimbursement to the individual claiming reimbursement or holding the P-card. These expenses are considered out of compliance with the accountable plan date-related safe harbors.
2.Reimbursements will not be provided if turned in later than 6 months after the expenditure was incurred. P-card incurred expenses will be withheld from your next paycheck if turned in later than 6 months beyond the statement date.
3.All expenses, reimbursements and P-card reconciliations must be turned in by the 2nd close at year-end (approximately July 15th) to be considered timely. Expense reimbursements will not be provided if turned in after this deadline and P-card expenses outstanding for the fiscal year will be withheld from your next paycheck if not submitted by the 2nd close.
Check out publication 463 (2013)
http://www.irs.gov/publications/p463/ch06.html
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FP&A