Prepare Now to Compensate Staff, Board Members, and Volunteers
Regardless of how infrequently your not-for-profit organization needs to compensate staff, board members, or volunteers, there will likely come a time when reimbursement requests arise. Will your organization be equipped to handle these requests efficiently and in accordance with IRS regulations? A well-defined reimbursement policy is the solution. Not only does it provide clarity on reimbursement procedures, but it also reduces the likelihood of disputes.
Two Key Categories
According to the IRS, reimbursement plans typically fall into two primary categories:
- Accountable Plans: Reimbursements made under these plans generally do not count as taxable income for recipients, provided they meet three criteria:
- Expenses must be related to the organization’s activities.
- Claimants must adequately substantiate expenses within 60 days.
- Any excess reimbursement must be returned within 120 days.
Advances given to employees or volunteers are compliant with the third criterion if they reasonably match anticipated expenses and are provided within 30 days of the expense being incurred.
- Nonaccountable Plans: Reimbursements under these plans do not meet the above requirements and are therefore considered taxable income.
Policy Considerations
Your reimbursement policy should outline which expenses are eligible for reimbursement and any associated restrictions. For instance, you might establish limits on lodging costs or exclude alcohol expenses from reimbursement.
Ensure that your policy mandates timely submission of expense documentation within 60 days, including receipts and a detailed statement of expenses. While the IRS typically requires receipts, exceptions exist for certain expenses, such as per diem allowances or transportation costs without readily available receipts.
Additionally, the policy should stipulate the prompt return of any excess payments within 120 days.
Standard Rates vs. Actual Costs
Address how mileage reimbursement will be handled, whether based on standard rates or actual expenses. Employees can be reimbursed at the federal standard mileage rate, while volunteers may receive a lower rate. Alternatively, actual expenses such as gas, repairs, and insurance can be reimbursed.
Tailored Solutions
Crafting a reimbursement policy tailored to your not-for-profit organization’s specific needs can be daunting. At Accavallo & Company, we offer assistance in developing a policy that aligns with your organization’s size, mission, and activities, ensuring compliance with IRS regulations and facilitating smooth operations as your organization grows.
If you need further information or assistance with preparing to compensate your staff, board members, and volunteers please don’t hesitate to contact us at Accavallo & Company. You can reach us at (203) 925-9600 or email us at [email protected].
