EXPENSE REIMBURSEMENT POLICY

Company Name: [________________________________]
Effective Date: [__/__/____]
Last Revised: [__/__/____]
Policy Number: [____]
Approved By: [________________________________]
Department: Finance / Human Resources

1. PURPOSE AND SCOPE

1.1 Purpose

This policy establishes the guidelines and procedures for the reimbursement of reasonable and necessary business expenses incurred by employees of [________________________________] ("Company") in the course of performing their job duties. This policy is designed to:

• Ensure employees are reimbursed fairly and promptly for legitimate business expenses
• Comply with IRS accountable plan rules (Treas. Reg. § 1.62-2) so that reimbursements are not treated as taxable income
• Comply with state laws requiring mandatory reimbursement of business expenses
• Provide clear guidelines on eligible and ineligible expenses, documentation requirements, and approval workflows
• Protect the Company from unauthorized or excessive expenditures
• Maintain proper substantiation for tax and audit purposes

1.2 Scope

This policy applies to:

• All full-time and part-time employees
• Temporary employees and interns (to the extent they incur reimbursable business expenses)
• Employees working on-site, remotely, or in hybrid arrangements
• All Company locations and all states in which the Company has employees

Independent contractors are not covered by this policy; their expense arrangements are governed by their respective contracts.

1.3 Policy Hierarchy

In the event of a conflict between this policy and a more restrictive state law, the state law will control. Employees in states with mandatory reimbursement requirements (see Section 15) are entitled to reimbursement for all necessary business expenses as required by applicable law, regardless of any limitations in this policy.

2. IRS ACCOUNTABLE PLAN COMPLIANCE

2.1 Overview

This policy is intended to qualify as an "accountable plan" under Treas. Reg. § 1.62-2, so that reimbursed expenses are excluded from employees' taxable income and are not subject to income tax withholding or employment taxes.

2.2 Three Requirements

To qualify as an accountable plan, the policy must satisfy three requirements:

Business Connection: All reimbursed expenses must have a legitimate business purpose and must be incurred by the employee in connection with the performance of services as a Company employee.

Adequate Substantiation: Employees must substantiate each expense by providing documentation of the amount, date, time (for travel or entertainment), place, and business purpose of the expense, within a reasonable period of time (see Section 10).

Return of Excess Amounts: Employees who receive advance payments or per diem allowances in excess of substantiated expenses must return the excess to the Company within a reasonable period of time (see Section 11).

2.3 Tax Consequences of Non-Compliance

If an expense reimbursement arrangement fails to meet the accountable plan requirements, the reimbursement will be treated as a "nonaccountable plan" payment. This means:

• The reimbursement amount will be included in the employee's gross income
• The amount will be reported as wages on the employee's Form W-2
• The amount will be subject to federal income tax withholding, Social Security, and Medicare taxes
• The employee will not be able to deduct the expense on their personal tax return (per the Tax Cuts and Jobs Act of 2017, which suspended the deduction for unreimbursed employee business expenses through 2025)

3. ELIGIBLE EXPENSE CATEGORIES

The following categories of expenses are eligible for reimbursement when incurred for a legitimate business purpose, subject to the specific limits and requirements set forth below.

3.1 Travel — Airfare

3.2 Travel — Lodging

3.3 Travel — Ground Transportation

3.4 Travel — Meals

3.5 Client Entertainment and Business Meals

3.6 Business Supplies and Materials

3.7 Professional Development

3.8 Communications

4. MILEAGE REIMBURSEMENT

4.1 IRS Standard Mileage Rate

Employees who use their personal vehicles for Company business will be reimbursed at the IRS standard mileage rate in effect at the time the travel occurs:

Note: Mileage rates are published annually by the IRS and are subject to change. The Company will update this policy as new rates are announced. The 2025 rate is per IRS Notice 2025-05; the 2026 rate is per IRS Notice 2026-10.

4.2 Mileage Calculation

• Mileage is calculated from the employee's regular work location to the business destination, or from the employee's home to the business destination if the employee starts from home, whichever is less
• Commuting mileage (home to regular work location and return) is not reimbursable
• Employees who regularly work from home and must travel to a Company office or other business location will be reimbursed for mileage from their home to the destination, minus their normal commute (if any)
• GPS or mapping application records are acceptable for documenting mileage

4.3 Mileage Log

Employees must maintain a mileage log that includes:

☐ Date of travel
☐ Starting point and destination
☐ Business purpose of the trip
☐ Total miles driven for business purposes
☐ Odometer readings or mapping application screenshots (recommended)

4.4 Depreciation Component

For employees and the Company's records: of the 2026 rate of $0.725, approximately $0.35 per mile is attributable to vehicle depreciation.

5. PER DIEM OPTION

5.1 Overview

In lieu of reimbursing actual expenses for lodging and/or meals and incidental expenses (M&IE), the Company may elect to use the IRS per diem rates. Per diem payments that do not exceed the applicable federal rate do not need to be substantiated with individual receipts (only the time, place, and business purpose must be documented).

5.2 Current Per Diem Rates (High-Low Substantiation Method)

Effective October 1, 2025 through September 30, 2026 (per IRS Notice 2025-54):

A locality is designated as "high-cost" if the federal per diem rate for that locality is $272 or more per day. The list of high-cost localities is published annually in IRS notices and updated quarterly by GSA.

5.3 Meals-Only Per Diem

The Company may also elect to reimburse actual lodging costs plus a per diem for meals and incidental expenses only:

5.4 Partial Day Per Diem

For the first and last day of travel, the per diem for M&IE is 75% of the applicable rate.

5.5 GSA Locality Rates

As an alternative to the high-low method, the Company may use the GSA locality-specific per diem rates published at https://www.gsa.gov/travel/plan-book/per-diem-rates. Employees should confirm the applicable rate for their destination before travel.

5.6 International Travel

Per diem rates for international travel are published by the U.S. Department of State at https://aoprals.state.gov/web920/per_diem.asp. International travel must be pre-approved by [________________________________].

6. REMOTE WORK EXPENSE REIMBURSEMENT

6.1 Applicability

This section applies to employees who are authorized to work remotely on a regular basis (at least [____] days per week) or full-time. Occasional remote work (e.g., inclement weather days) is generally not covered unless required by state law.

6.2 Reimbursable Remote Work Expenses

The following expenses may be eligible for reimbursement for authorized remote workers:

6.3 Non-Reimbursable Remote Work Expenses

• Home rent or mortgage payments
• Utilities (electricity, heating, cooling) unless required by state law
• Home office furniture beyond what is necessary and pre-approved
• Home maintenance or renovations
• Personal technology devices used primarily for personal purposes

6.4 State Law Requirements

Several states require reimbursement of necessary remote work expenses incurred at the employer's direction. In particular:

• California (Lab. Code § 2802): Requires reimbursement of all necessary expenditures incurred by the employee in direct consequence of the discharge of their duties. For remote workers, this includes a reasonable portion of internet, phone, and other necessary expenses.
• Illinois (820 ILCS 115/9.5): Requires reimbursement of all necessary expenditures within the employee's scope of employment.
• Other states: See Section 15 for the full list of states with mandatory reimbursement requirements.

The Company will reimburse remote work expenses as required by applicable law, even if the expense is not specifically listed in this policy.

6.5 Stipend Option

In lieu of tracking and reimbursing individual remote work expenses, the Company may provide a monthly remote work stipend of $[____] to cover routine expenses. Stipend amounts should be set at a level that reasonably approximates the actual expenses incurred.

Tax Note: A fixed stipend not requiring substantiation of actual expenses does not satisfy the accountable plan rules and will be treated as taxable income.

7. TECHNOLOGY AND EQUIPMENT EXPENSES

7.1 Company-Provided Equipment

The Company will generally provide employees with the technology and equipment necessary to perform their jobs, including laptops, monitors, phones, and standard software. Company-provided equipment remains the property of the Company.

7.2 Employee-Purchased Equipment

If an employee is authorized to purchase technology or equipment for Company use, the following guidelines apply:

7.3 Repairs and Maintenance

Repairs to Company-owned equipment should be coordinated through the IT department. Unauthorized repairs are not reimbursable. Repairs to employee-owned equipment used for Company business may be reimbursable with pre-approval.

8. CORPORATE CREDIT CARD POLICY

8.1 Issuance

Corporate credit cards are issued at the discretion of [________________________________] to employees who regularly incur business expenses on behalf of the Company. Corporate credit cards remain the property of the Company.

8.2 Authorized Use

☐ Corporate credit cards may be used only for authorized Company business expenses
☐ Personal charges on corporate credit cards are strictly prohibited
☐ Employees are responsible for the security of their corporate credit card and must report lost or stolen cards immediately to [________________________________]

8.3 Reconciliation

☐ Employees must reconcile corporate credit card statements within [____] days of the statement date
☐ Each transaction must be supported by an itemized receipt and a description of the business purpose
☐ Any personal charge inadvertently placed on the corporate credit card must be reported immediately and repaid to the Company within [____] days

8.4 Liability

☐ The Company is liable for authorized business charges on corporate credit cards
☐ The employee is personally liable for any unauthorized, personal, or undocumented charges
☐ Failure to reconcile corporate credit card statements or comply with this section may result in revocation of the card and disciplinary action

8.5 Termination

Upon separation from employment, the employee must return the corporate credit card to [________________________________] on or before the last day of employment. Any outstanding unreconciled charges must be resolved prior to or at the time of separation.

9. PRE-APPROVAL REQUIREMENTS

9.1 When Pre-Approval Is Required

Pre-approval is required for the following:

☐ All travel involving overnight stays
☐ International travel
☐ Individual expenses expected to exceed $[____]
☐ Client entertainment exceeding $[____]
☐ Conferences, seminars, and professional development activities
☐ Technology and equipment purchases exceeding $[____]
☐ Home office equipment (for remote workers)
☐ Any expense outside of normal categories described in this policy

9.2 Approval Authority

9.3 How to Request Pre-Approval

Employees must submit a pre-approval request to their approver (via [email / expense management system / form]) that includes:

☐ Description of the expense and business purpose
☐ Estimated amount
☐ Date(s) of the expected expense
☐ Supporting information (conference agenda, travel itinerary, vendor quote, etc.)

Pre-approval does not guarantee reimbursement of the full estimated amount. Actual reimbursement will be based on documented expenses incurred.

10. SUBSTANTIATION AND DOCUMENTATION REQUIREMENTS

10.1 General Requirements

Under IRC § 274 and Treas. Reg. § 1.62-2(e), all expenses must be substantiated with adequate records. For each expense, the employee must provide:

☐ Amount: The exact amount of the expense (itemized receipt required for expenses of $75 or more; recommended for all expenses)
☐ Date: The date the expense was incurred
☐ Place: The location or vendor where the expense was incurred
☐ Business Purpose: A clear description of the business reason for the expense
☐ Names and Relationships: For business meals and entertainment, the names of the individuals present and their business relationship to the Company

10.2 Receipt Requirements

10.3 Lost or Missing Receipts

If an original receipt is lost or unavailable:

• The employee must complete a Lost Receipt Affidavit, providing the date, amount, vendor, and business purpose
• Lost receipt affidavits should be the exception, not the norm
• Repeated inability to provide receipts may result in denial of reimbursement and/or review of the employee's expense privileges

10.4 Currency Conversion

Expenses incurred in foreign currency must be converted to U.S. dollars using the exchange rate in effect on the date of the transaction. Credit card statements showing the converted amount are acceptable documentation.

11. EXPENSE REPORT SUBMISSION AND TIMING

11.1 Submission Deadlines

IRS "Reasonable Period" Safe Harbor: Under Revenue Ruling 2005-52, advances within 30 days before the expense, substantiation within 60 days after, and return of excess within 120 days after the expense are deemed to meet the "reasonable period" standard for accountable plan compliance.

11.2 How to Submit

Employees must submit expense reports through [the Company's expense management system / email to [________________________________] / paper form submitted to [________________________________]].

Each expense report must include:

☐ Employee name, department, and employee ID
☐ Expense period (dates covered by the report)
☐ Itemized list of expenses with amounts, dates, vendors, and business purposes
☐ Attached receipts and supporting documentation
☐ Mileage log (if applicable)
☐ Pre-approval documentation (if applicable)
☐ Employee signature and date

11.3 Late Submissions

Expense reports submitted more than [____] days after the expense was incurred may be denied or treated as nonaccountable plan payments (and included in the employee's taxable income). Employees are encouraged to submit expense reports promptly to avoid delayed reimbursement and adverse tax consequences.

12. APPROVAL AND PAYMENT

12.1 Review and Approval

• Expense reports will be reviewed by [the employee's direct supervisor / the Finance department / [________________________________]]
• The reviewer will verify compliance with this policy, reasonableness of expenses, adequacy of documentation, and proper pre-approval
• Incomplete or non-compliant expense reports will be returned to the employee for correction

12.2 Reimbursement Timing

State Law Note: In some states (including California), reimbursement must be made promptly and cannot be unreasonably delayed. Employers must ensure that reimbursement timing complies with applicable state law.

12.3 Payment Method

Approved reimbursements will be paid via [direct deposit to the employee's payroll account / separate check / [________________________________]]. Reimbursements that qualify under the accountable plan will not be reported as wages and will not be subject to tax withholding.

12.4 Disputes

If an expense is denied or reduced, the employee will be notified with an explanation. The employee may appeal the denial by submitting a written explanation to [________________________________] within [____] days of the denial. The appeal will be reviewed by [________________________________], whose decision is final.

13. NON-REIMBURSABLE EXPENSES

The following expenses are generally not reimbursable:

☐ Personal expenses not related to Company business
☐ Commuting costs between home and the regular workplace (except as required by state law for remote workers)
☐ Traffic citations, parking tickets, and moving violations
☐ Late fees, interest charges, or penalties
☐ Personal entertainment, recreation, or leisure activities
☐ Personal clothing (unless required protective or specialized work attire)
☐ Pet care or pet-sitting during business travel
☐ Childcare or dependent care during business travel (unless provided as a Company benefit)
☐ Personal travel, side trips, or travel extensions not related to Company business
☐ Travel companion expenses (spouse, partner, or family member)
☐ Expenses reimbursed by a third party (client, conference organizer, etc.)
☐ Luxury or premium services unless pre-approved (first-class airfare, premium rideshare, luxury hotels)
☐ Personal grooming, spa services, or fitness center fees
☐ Laundry and dry cleaning (unless the trip exceeds [____] consecutive days)
☐ Personal phone calls (beyond reasonable de minimis use)
☐ Gifts to clients or business associates exceeding $[____] per person per year (IRS limit: $25 per person per year for tax deductibility under IRC § 274(b))
☐ Charitable contributions
☐ Expenses without adequate documentation (unless the employee completes a lost receipt affidavit)
☐ Expenses not pre-approved when pre-approval was required

14. ADVANCES

14.1 Eligibility

Employees may request a cash advance for anticipated business expenses when:

• The estimated expenses exceed $[____]
• The expenses are for approved travel or a specific business purpose
• The employee is not able to use a corporate credit card

14.2 Process

☐ Submit advance request to [________________________________] at least [____] business days before the anticipated expense
☐ Include a description of the business purpose and estimated expenses
☐ Obtain approval from [________________________________]

14.3 Reconciliation

☐ Within [____] calendar days of completing the trip or activity, the employee must submit an expense report reconciling the advance against actual expenses
☐ If actual expenses are less than the advance, the employee must return the excess to the Company within [____] calendar days
☐ If actual expenses exceed the advance, the difference will be reimbursed through the normal expense reimbursement process

14.4 Outstanding Advances

Advances not reconciled within the required timeframe will be treated as follows:

• A reminder will be issued to the employee
• If still unreconciled after [____] additional days, the advance may be deducted from the employee's next paycheck (to the extent permitted by applicable state law and with appropriate written authorization)
• Unreconciled advances may be reported as taxable income on the employee's Form W-2

15. STATE MANDATORY REIMBURSEMENT LAWS

The following states have laws requiring employers to reimburse employees for necessary business expenses. The Company will comply with all applicable state reimbursement requirements, which may provide broader coverage than this policy.

15.1 State-by-State Summary

15.2 California Compliance Detail (Lab. Code § 2802)

Given the breadth of California's reimbursement requirements, the following additional guidelines apply to employees working in California:

☐ The Company will reimburse all necessary business expenses, including cell phone costs (proportionate to business use), internet costs (for remote workers), personal vehicle use, and other expenses required by or incurred as a result of the employee's job duties
☐ Reimbursement will be made promptly and may not be delayed unreasonably
☐ Employees need not formally submit an expense report for the Company's obligation to attach, but the Company may require submission of expense reports to facilitate timely reimbursement
☐ Failure to reimburse may result in the employee recovering the unreimbursed amount plus interest and reasonable attorney's fees under Lab. Code § 2802(c)

15.3 Illinois Compliance Detail (820 ILCS 115/9.5)

☐ The Company will reimburse Illinois employees for all necessary expenditures within the scope of employment
☐ The Company may establish written expense limits, and employees who fail to comply with the written policy or who exceed policy limits are not entitled to reimbursement for the non-compliant amount
☐ Employees who believe they have been denied reimbursement for a necessary business expense may file a complaint with the Illinois Department of Labor

16. TAX IMPLICATIONS

16.1 Accountable Plan Reimbursements

Reimbursements made under this policy that meet the accountable plan requirements (business connection, substantiation, return of excess) are:

☐ Excluded from the employee's gross income
☐ Not reported as wages on Form W-2
☐ Not subject to federal income tax withholding, Social Security, or Medicare taxes
☐ Deductible by the Company as a business expense

16.2 Nonaccountable Plan Reimbursements

Reimbursements that do not meet accountable plan requirements (including late-submitted expense reports, unsubstantiated expenses, and unreturned excess advances) are:

☐ Included in the employee's gross income
☐ Reported as wages on Form W-2
☐ Subject to federal income tax withholding, Social Security, and Medicare taxes

16.3 Per Diem and Mileage

☐ Per diem payments at or below the federal rate are not taxable to the employee (if the accountable plan requirements are met)
☐ Per diem payments exceeding the federal rate are taxable to the extent of the excess
☐ Mileage reimbursement at or below the IRS standard rate is not taxable to the employee
☐ Mileage reimbursement exceeding the IRS standard rate is taxable to the extent of the excess

16.4 Business Gifts

Under IRC § 274(b), the Company's tax deduction for business gifts is limited to $25 per recipient per year. Gifts exceeding this amount may still be reimbursable but may not be fully deductible by the Company.

17. POLICY VIOLATIONS AND FRAUD

17.1 Prohibited Conduct

The following conduct constitutes a violation of this policy:

☐ Submitting false, fabricated, or altered receipts or expense reports
☐ Claiming reimbursement for personal expenses
☐ Claiming reimbursement for expenses paid by a third party
☐ Intentionally inflating expenses or submitting duplicate claims
☐ Using a corporate credit card for personal purchases
☐ Failing to return excess advance amounts within the required timeframe
☐ Submitting expenses without required pre-approval

17.2 Consequences

Violations of this policy may result in:

• Denial of the expense claim
• Requirement to repay improperly received reimbursements
• Revocation of corporate credit card privileges
• Disciplinary action up to and including termination
• Referral to law enforcement in cases of fraud, theft, or embezzlement

17.3 Audits

The Company reserves the right to audit expense reports and reimbursements at any time. Employees must cooperate with any audit or review of their expense records.

18. POLICY ADMINISTRATION

18.1 Policy Owner

This policy is administered by [________________________________] with support from the Finance and Human Resources departments.

18.2 Annual Review

This policy will be reviewed at least annually and updated to reflect:

☐ Changes in IRS mileage rates and per diem rates
☐ Changes in applicable state or federal law
☐ Changes in Company operations or business practices
☐ Feedback from employees, managers, and auditors

18.3 Questions

Employees who have questions about this policy or the reimbursability of a specific expense should contact [________________________________] before incurring the expense.

EMPLOYEE ACKNOWLEDGMENT

I, [________________________________], acknowledge that:

☐ I have received, read, and understand the Company's Expense Reimbursement Policy.

☐ I understand that I am responsible for complying with this policy when incurring and submitting business expenses.

☐ I understand that submitting false or fraudulent expense claims is a serious violation that may result in disciplinary action, up to and including termination and referral to law enforcement.

☐ I understand that expenses not properly documented or not submitted within the required timeframes may be denied reimbursement or treated as taxable income.

☐ I understand that I must return any excess advance amounts within the timeframes specified in this policy.

☐ I have had an opportunity to ask questions about this policy and have received satisfactory answers.

Employee Signature: [________________________________]
Employee Printed Name: [________________________________]
Date: [__/__/____]

Supervisor/HR Signature: [________________________________]
Date: [__/__/____]

QUICK REFERENCE: CURRENT IRS RATES

Verify rates at irs.gov before relying on these figures.

Per diem rates shown are from IRS Notice 2025-54 (effective Oct. 1, 2025 through Sept. 30, 2026). New rates for the Oct. 1, 2026 through Sept. 30, 2027 period will be published separately.

SOURCES AND REFERENCES

• IRS Accountable Plan Rules, Treas. Reg. § 1.62-2
• IRC § 274 — Disallowance of Certain Entertainment, Amusement, Recreation, and Travel Expenses
• IRC § 162 — Trade or Business Expenses
• IRS Notice 2026-10, 2026 Standard Mileage Rates
• IRS Notice 2025-54, Special Per Diem Rates (Oct. 1, 2025 – Sept. 30, 2026)
• IRS Revenue Ruling 2005-52 (Reasonable Period Safe Harbor)
• IRS Publication 463, Travel, Gift, and Car Expenses
• IRS Publication 5137, Fringe Benefit Guide
• California Labor Code § 2802
• Illinois Wage Payment and Collection Act, 820 ILCS 115/9.5
• GSA Per Diem Rates: https://www.gsa.gov/travel/plan-book/per-diem-rates
• State Department Per Diem Rates: https://aoprals.state.gov/web920/per_diem.asp

This template is provided for informational purposes only and does not constitute legal advice. It is intended for use on the ezel.ai platform. You must have this document reviewed and customized by a qualified attorney licensed in your jurisdiction before implementation. Tax laws and employment laws vary by jurisdiction and change frequently. IRS rates referenced in this document should be verified at the time of adoption. Do not distribute this policy to employees without professional legal and tax counsel review.