Often, clients ask for clarification on expense travel rules and the treatment of reimbursements when frequent flyer miles are used. A couple common questions include:
- If employees use their personal frequent flyer miles to purchase airplane tickets for a work-related flight, should the employees be reimbursed by the company?
- If the employees are reimbursed, is this a taxable benefit?
Frequent Flyer Miles
Internal Revenue Service (“IRS”) Topic 511 addresses business travel expenses and states “if you’re provided with a ticket or you’re riding free as a result of a frequent traveler or similar program, your cost is zero”. The employee is considered to have paid nothing for the airplane ticket, so there is no cost on which to base a reimbursement by the company.
Reimbursement of Employee
There are two types of employer reimbursement programs – accountable and non-accountable.
An accountable plan must follow three rules. Reimbursements or allowances under an accountable plan can not be included as income by the employee. The three rules of an accountable plan are:
- The expenses must have been incurred while performing services as an employee.
- The employee must adequately account for the expenses within a reasonable time.
- Any excess reimbursement or allowance must be returned by the employee to the employer.
If the reimbursement plan does not meet all of the above rules, then the plan is a non-accountable plan. Reimbursements or allowances received under a non-accountable plan are included as wages on the employee’s Form W-2.
CONCLUSION
Employees should not be reimbursed by the company for work-related airplane tickets purchased using frequent flyer miles.
If the employees are reimbursed by the company, the company has a non-accountable plan and the reimbursement has to be included in the employee’s wages on Form W-2.
Contact your HLB Gross Collins, P.C. representative if you have additional questions.