How to reimburse employee expenses through Payroll
Some employers reimburse their employee out-of-pocket expenses (e.g. travel, supplies, mileage) through payroll. The reimbursement is generally not taxable income to the employee; every organization though will have to determine whether it is taxable or nontaxable.
To setup reimbursement through payroll, you will need:
- A general ledger account to charge the reimbursement
- To set up a Pay Item
- To enter the Account Distributions for the Pay Item
- To add the Pay Item to an employee(s) Pay Data tab
- In Process Payroll, to update the employees Edit Timecard screen
In the following example, we add a Pay Item for Mileage Reimbursement that is not taxable.
We use account 95001 for the expense; it is already set up:
In Payroll → Setup → Pay Item, create the new Pay Item.
In the Account Distributions screen, fill in the missing information:
In the Employee Information Screen, add the mileage reimbursement Pay Item in the Pay Data tab. In this example, we entered an IRS standard rate for mileage reimbursement (55 cents per mile):
In Process Payroll → Edit Timecards, enter the number of miles (10) and the software will calculate the total reimbursement due to the employee ($5.50):