Are nonaccountable plan reimbursements taxable wages?

What makes a plan nonaccountable

Publication 463 (2025) defines a nonaccountable plan by what it lacks. It is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules for an accountable plan: your expenses must have a business connection, you must adequately account to your employer within a reasonable period of time, and you must return any excess within a reasonable period of time. If a plan leaves out the accounting requirement, the return-of-excess requirement, or both, it is nonaccountable from the start. That is the plain reading of the first line of the publication’s Table 6-1 row for nonaccountable plans, where the employer reports the entire amount as wages in box 1.

There is a second route into the same bucket. An employer can run a perfectly good accountable plan and still have some payments treated as nonaccountable. The publication names two: excess reimbursements you fail to return to your employer, and reimbursements of nondeductible expenses related to your employer’s business. So the label on the plan matters less than what happened to each dollar.

Why the money lands in box 1

The logic is about whether the employer is really repaying a cost or just paying you more. Under an accountable plan the money is a pass-through: you spend, you prove it, and you give back what you did not spend, so nothing is income. Under a nonaccountable plan you keep whatever you do not spend and nobody checks, which makes the payment look like pay. The publication puts it this way for an arrangement that reduces your wages: a plan that repays business expenses by reducing the amount reported as your wages, salary or other pay is nonaccountable, because you are entitled to your full pay whether or not you have business expenses.

The employer adds the nonaccountable amount to your regular pay and reports one total in box 1 of Form W-2. That is why the amount shows up inside your W-2 wages and not as a separate reimbursement line. Employers who want the rules from their side are pointed to Pub. 15 (Circular E).

The two examples in the publication

Example 1 in the publication: your employer gives you $1,000 a month, $12,000 for the year, for business expenses. You do not have to provide any proof, and you can keep what you do not spend. You are a performing artist and are reimbursed under a nonaccountable plan. Your employer includes the $12,000 on your Form W-2 as if it were wages, and if you want to deduct your expenses you must complete Form 2106 and itemize. Enter 12000 in the first box of the calculator above and it returns $12,000 added to wages.

Example 2: you earn $2,000 a month and your employer designates $50 a day of that salary as travel reimbursement on days you travel. Your salary would be the same whether or not you traveled, so the arrangement is nonaccountable and none of the $50 is treated as paid under an accountable plan. The designation is a label, not a reimbursement.

A worked blend of both kinds of plan

Say an employer runs an accountable plan and reimburses an employee $4,000 for a month of travel. The employee accounts for $3,600 and returns nothing, so $400 is excess. The same plan also paid $150 for meals when the employee worked late at the office while not away from home. The publication treats that kind of late-office meal as a reimbursement of a nondeductible expense. Put the figures in the calculator: $400 unreturned excess plus $150 nondeductible reimbursements equals $550 added to wages, and $3,450 stays outside wages as the part that met all three rules. Nothing about the trip itself became taxable; only the leftovers did.

What it means for deductions

If you are an employee paid under a nonaccountable plan, your expenses are not reimbursed income that nets out. You report the whole payment as wages, and to deduct travel, transportation or non-entertainment meals you must complete Form 2106 and itemize. This is where a rule that surprises many people applies: for tax years beginning after 2017, Form 2106 is used only by Armed Forces reservists, qualified performing artists, fee-basis state or local government officials, and employees with impairment-related work expenses, because miscellaneous itemized deductions subject to the 2% floor are suspended. An employee outside those four groups who is paid under a nonaccountable plan has taxable wages and, generally, no deduction to offset them. Meal expenses that you can deduct are still subject to the 50% limit.

You cannot convert it yourself

The publication is blunt on this. The employer makes the decision whether to reimburse employees under an accountable or a nonaccountable plan, and an employee who receives payments under a nonaccountable plan cannot convert them to an accountable plan by voluntarily accounting to the employer and voluntarily returning the excess. If you are not sure which kind of plan you have, the publication’s advice is to ask your employer. Practical test: read your written policy for the words “submit receipts” and “return unused advances.” If both are missing, expect the money in box 1.

If instead your employer included reimbursements in box 1 even though you met all three accountable plan rules, the publication says to ask for a corrected Form W-2.

Records still matter

Employees who hand their records to the employer and are reimbursed generally do not have to keep copies, but the publication lists conditions that change that, including that your expenses are reimbursed under a nonaccountable plan. In that case you may have to prove your expenses yourself, so keep the log and the receipts described in chapter 5.

Sources

• IRS Publication 463, Travel, Gift, and Car Expenses (2025): Chapter 6, Accountable Plans; Failure to return excess reimbursements; Reimbursement of nondeductible expenses; Nonaccountable Plans; Reporting your expenses under a nonaccountable plan; Table 6-1; Completing Form 2106; Special Rules. Read November 2, 2026.

Edition read: Publication 463 (2025), for use in preparing 2025 returns. Rates and dollar limits on this page are the 2025 figures printed in that edition; check the current publication, form instructions and GSA.gov per diem tables for your tax year. This page summarizes the publication and does not replace it.