Employee Expense Reimbursement

The process by which employers repay employees for out-of-pocket work-related expenses — and the legal landscape around what must be reimbursed.

Employee expense reimbursement is the process by which an employer repays an employee for work-related expenses the employee paid out of pocket. Common reimbursable expenses include business travel (airfare, hotel, meals while traveling), mileage for driving a personal vehicle for work purposes, client entertainment, professional development costs, home office supplies, and phone or internet charges for remote workers. Most employers have an expense reimbursement policy that specifies what's covered, maximum amounts, required documentation (receipts), and the timeline for submitting and receiving reimbursement.

There is no federal law requiring employers to reimburse employees for work expenses — with one significant exception: employers cannot require employees to pay expenses that would bring their wages below the federal minimum wage. Several states go further: California explicitly requires employers to reimburse all 'necessary expenditures or losses' incurred by employees in performing their job duties. Illinois requires reimbursement for 'necessary expenditures' the employee incurs within the scope of employment. Massachusetts requires reimbursement for expenses incurred in the performance of duties. For remote workers, these state requirements have become particularly significant: in California, Illinois, and several other states, employers are legally required to reimburse remote employees for a portion of home internet and phone costs used for work.

IRS rules govern the tax treatment of reimbursements. Under an 'accountable plan' (where employees substantiate expenses with receipts and return any excess advance), reimbursements are not taxable income to the employee and are deductible for the employer. Under a 'non-accountable plan' (where the employer pays a flat allowance without requiring documentation), the payment is considered taxable compensation. Most employers use accountable plans for this reason. For employees whose employers don't reimburse certain expenses, those costs are generally no longer deductible on federal taxes (the Tax Cuts and Jobs Act of 2017 eliminated the unreimbursed employee expense deduction for most employees through 2025).

Common Expense Categories and Best Practices

  • Business travel: airfare, hotel, ground transport, and meals are typically reimbursable but often subject to per diem limits or booking policy requirements. Book within policy — out-of-policy bookings may not be reimbursed.
  • Mileage: IRS standard mileage rate (67 cents/mile in 2024) is the most common benchmark. Track mileage accurately — apps like MileIQ make this easy.
  • Home office and remote work: internet and phone stipends are increasingly common and legally required in some states. Confirm your employer's policy and any state requirements.
  • Professional development: books, courses, conference fees — many employers reimburse these under a separate professional development budget rather than the general expense policy.
  • Client meals and entertainment: typically reimbursable but often require documentation of business purpose (who attended, what business topic was discussed). Keep notes at the time.
  • Submit promptly: most expense policies have submission deadlines (30–90 days). Late submissions may be rejected. Set a calendar reminder after any significant work expense.

When Employers Don't Reimburse

If your employer's policy doesn't cover expenses you believe are work-related, there are a few avenues. In states with mandatory reimbursement laws (California, Illinois, Massachusetts, Iowa, Montana), you can file a wage claim if you're being required to incur unreimbursed business expenses. Outside those states, the options are negotiation (raise the expense issue during hiring or performance review) or accepting the gap. For remote workers specifically: even in states without explicit reimbursement laws, if the employer requires work from home, courts and labor agencies in an increasing number of jurisdictions are treating home internet as a required expense that must be reimbursed. Document what you spend and why, and keep copies of any communications where your employer directs you to incur the expense — that documentation supports a claim if you later need to pursue reimbursement.

Example

A sales manager regularly drives her personal vehicle to client meetings, averaging 800 miles per month. Her employer's reimbursement policy uses the IRS standard rate: 800 miles × $0.67 = $536/month. She submits monthly mileage reports with dates, destinations, and business purpose. The reimbursement is processed within 15 business days under the company's accountable plan and is not included in her W-2 as taxable income. A colleague who doesn't submit expense reports for the same mileage is effectively subsidizing the company's sales operation out of his own pocket — a situation that would constitute a wage violation in California.