What are Reimbursable Expenses: Everything Businesses Need to Know
- Reimbursable expenses are covered by the company when they are related to business activities.
- Clear expense policies should be followed to ensure accurate reimbursement.
- Proper records and receipts should be maintained to support expense claims.
- Expense tracking should be done regularly to improve financial control and reduce errors.
Every business reaches a point where an employee pays for something out of their own pocket a last-minute flight, a client dinner, or some work-from-home equipment.
These are reimbursable expenses, and how your company handles them says a lot about the health of your financial operations.
Whether you’re a finance professional building a policy from scratch, an HR manager fielding employee questions, or a founder trying to understand what claimable expense are. This guide covers everything: definitions, categories, tax treatment, accounting methods, policy frameworks, and common pitfalls to avoid
What Are Reimbursable Expenses?
Reimbursable expenses are business costs paid by employees using personal money and later repaid by the employer according to company policy. The purchase happens first; repayment follows once the claim is verified and approved.
The term also applies in a professional services context. When a consultant, contractor, or agency incurs costs while working on a client project travel to a client site, licensed software, printing materials those costs are billed back to the client.
For a expenses to qualify as reimbursable, three conditions generally need to be met:
- Business purpose — The expense must relate directly to work activities or the company’s operations.
- Documentation — A receipt, invoice, or equivalent proof must exist showing what was purchased, when, where, and for how much.
- Policy alignment — The expense must fall within the company’s defined reimbursement rules, including any spending caps or category restrictions
The IRS frames reimbursable business expenses as those that are “ordinary and necessary” for an employee’s role. That’s a useful baseline even for businesses that set stricter internal standards.
Reimbursable vs. Non-Reimbursable Expenses: Where the Line Falls
The single clearest distinction is this: does the expense serve a business purpose, or a personal one? A business trip flight is reimbursable; A personal vacation flight is not. A client dinner is reimbursable. A birthday dinner with friends is not.
But real business spending is rarely that clean. Employees blur lines intentionally or not when they upgrade a rental car, add personal days to a work trip, or use a software subscription for both professional and personal tasks. These gray areas are exactly why written policies matter.
Common Reimbursable Expenses | Common Non-Reimbursable Expenses |
Flights, trains, or rental cars for business travel | Daily commuting costs (in most cases) |
Hotel stays during work trips | Personal entertainment or leisure expenses |
Meals with clients or during business travel | Gym memberships not related to job requirements |
Office supplies needed for remote work | Personal comfort upgrades, such as first-class travel when economy is approved |
Conference registration and industry event fees | Fines, penalties, or violations incurred by the employee |
Professional development courses and certifications | – |
Business-related phone and internet charges | – |
Some expenses can be used for both work and personal purposes. If the expense mainly benefits the employee, it is usually not reimbursable. If it supports work, it should be documented and reimbursed according to company policy.
Six Most Common Categories of Reimbursable Expense
Understanding which categories your business is most likely to encounter helps when drafting policy and setting spending limits.
1. Travel and Transportation
Employee mileage reimbursement is typically the largest and most complex category. It includes:
- Airfare and train tickets for business trips
- Rental car costs (base rate, not personal upgrades)
- Rideshares, taxis, and public transport fares
- Parking fees during business travel
- Mileage reimbursement when employees use personal vehicles
For mileage, most companies apply the IRS standard mileage rate (67 cents per mile in 2024), which simplifies calculation and keeps the reimbursement tax-free if it doesn’t exceed actual costs.
2. Lodging and Accommodations
Hotel stays for overnight business travel are reimbursable. Expense policies typically specify a reasonable nightly rate cap often based on location to avoid open-ended hotel spending. Incidentals like parking, Wi-Fi, and business center usage are often covered too, while minibar charges and in-room movies typically are not.
3. Meals and Business Entertainment
Meals become reimbursable expenses when they serve a clear business purpose: dining with a client, hosting a candidate interview over lunch, or eating during a work trip where per diem rules apply, travel and entertainment expense as per IRS.
4. Office Supplies and Remote Work Equipment
For in-office employees, this covers things like stationery, printer cartridges, or a keyboard replacement. The remote work category has expanded significantly monitors; ergonomic chairs, webcams, and headsets are increasingly standard reimbursable expenses.
Some companies handle this with a one-time remote setup stipend rather than item-by-item reimbursement, which reduces administrative work on both sides.
Why Choose Airbase as a Spendesk Alternative
Airbase suits businesses that need a broader spend management system, not just expense tracking. It is a good fit for finance teams that manage multiple payment types and need everything under one roof.
5. Professional Development and Training
When employees attend industry conferences, enrol in job-relevant courses, or sit for professional certifications, those expenses typically qualify as reimbursable expenses. This category often carries annual per-person budgets, and many companies require manager pre-approval before the cost is incurred.
6. Software, Subscriptions, and Tools
Employees sometimes purchase job-specific software subscriptions themselves a design tool, a project management app, a research database. These are reimbursable when they’re genuinely work-required and not already available through company accounts.
Are Reimbursable Expenses Taxable?
In most cases, employees are not taxed on reimbursements for valid business expenses when proper records, such as receipts and expense details, are submitted. Since the payment is intended to cover a work-related cost rather than provide additional income, it is generally not included in taxable earnings.
To maintain this tax treatment, businesses should have a clear reimbursement process that requires employees to report expenses accurately and provide supporting documentation. Reimbursements that are not properly documented may be treated differently for tax purposes.
Following established tax guidelines helps businesses stay compliant, reduces the risk of tax issues, and allows eligible business expenses to be claimed as deductions. Because tax rules can vary, it is always a good idea to review the latest guidance from the relevant tax authority or consult a qualified tax professional.
Source: Internal Revenue Service (IRS) guidance on employee expense reimbursements and accountable plans.
The takeaway: build your expense policy around accountable plan standards. Require documentation. Set timeframes. Keep reimbursements tethered to actual, verified costs
How to Account for Reimbursable Expenses?
From an accounting standpoint, reimbursable expenses need to be recorded accurately to reflect true business costs and maintain clean financial statements.
For the Employer (Business)
When an employee submits a reimbursable expense and is paid back, the business records:
- Debit to the relevant expense account (travel, meals, supplies, etc.)
- Credit to cash or accounts payable
The expense hits the period in which the business activity occurred — not when the reimbursement is paid. This matters for matching revenues to costs in the correct reporting period
For Consultants and Professional Services Firms
When a firm advances costs on behalf of a client flights booked, hotels paid, materials purchased those costs are recorded as reimbursable expense receivables. Once the client pays the invoice (which includes those costs), the receivable is cleared.
Building a Better Reimbursable Expense Policy
A reimbursable expense policy is the document that defines what qualifies, what’s excluded, how much is allowed, and how the process works from submission to payment. Without it, every reimbursable expense becomes a negotiation.
Here’s what an effective policy covers:
A reimbursable expense policy should clearly define what expenses qualify for reimbursement, what limits apply, and how reimbursement requests are handled. Clear guidelines help employees spend responsibly and reduce confusion.
1. Eligible Expense Categories
Specify which business expenses are reimbursable. Common examples include:
- Business travel and transportation
- Client meals and meetings
- Professional training and certifications
- Remote work supplies and equipment
- Business phone and internet expenses
2. Spending Limits
Set clear limits to help control costs and ensure consistent reimbursement. Examples:
- Meals: Up to $50–$75 per person
- Hotels: Up to $200–$300 per night, depending on location
- Mileage: Based on the current approved mileage rate
- Office supplies: Up to $100 per purchase without additional approval
3. Pre-Approval Requirements
Some expenses should be approved before the purchase is made, including:
- Travel bookings above $500
- Conference registrations above $300
- Equipment purchases above $250
- Software subscriptions or recurring business tools
4. Documentation Standards
To qualify for reimbursement, employees should provide:
- A receipt or invoice
- Purchase date
- Vendor name
- Amount paid
- Brief business purpose
5. Submission Deadlines
Expense claims should be submitted within a specified timeframe, such as:
- Within 30 days of the expense date
- Within 15 days after completing a business trip
Timely submissions help maintain accurate financial records and reporting
6. Reimbursement Timeline
Clearly state when employees can expect reimbursement. Common timelines include:
- Within 7–14 business days after approval
- On the next payroll cycle
- According to a weekly or bi-weekly reimbursement schedule
A defined reimbursement timeline improves transparency and employee satisfaction.
Make reimbursement easier for employees and finance teams
Reimbursement Process Step by Step
Understanding how the process flows from purchase to payment helps both employees and finance teams manage expectations and avoid delays.
Step 1: Purchase occurs
The employee pays out of their account for a business-related cost. They collect the receipt
Step 2: Expense report is submitted
The employee files a claim with supporting documentation, categorizes the expense, and adds a business purpose note. Most companies now use digital expense platforms or apps.
Step 3: Manager review
The direct manager approves or flags the claim. This step catches personal expenses submitted incorrectly, duplicate submissions, or policy violations before they reach finance.
Step 4: Finance review
The finance or accounting team verifies the documentation, checks policy compliance, and batches the approved expenses for payment.
Step 5: Reimbursement issue
Payment is made to the employee usually via direct deposit or as part of payroll. The expense is coded to the correct account
Step 6: Records are retained
Documentation is stored for audit purposes. The IRS generally requires businesses to retain expense records for at least three years.
Common Mistakes That Derail Reimbursable Expense Programs
Even well-intentioned expense programs run into problems. These are the patterns that show up most often.
Missing or inadequate documentation
The most frequent issue. An employee submits a claim with no receipt or with a bank statement instead of an itemized receipt. Finance must chase the employee, causing delays and frustration. Solution: enforce documentation standards at submission, not during approval.
No standard policy
When there’s no policy, every reimbursable expense claim is subject to personal interpretation. Managers approve inconsistently, employees feel treated unfairly, and the company has no defensible standard for disputed claims. Write the policy down.
Vague business purpose descriptions
“Dinner” tells an auditor nothing. “Client dinner with [Company Name] to discuss contract renewal” tells them everything they need. Train employees to add context, not just categories
Late submissions
Expense reports filed 90 days after the fact create matching problems in accounting, complicate period-close processes, and could make the reimbursement taxable.
Inconsistent enforcement
If policy limits are enforced for junior employees but overlooked for executives, the entire framework loses credibility. Expense policies only work when they apply uniformly.
Reimbursable Expenses vs. Corporate Cards
Some businesses eliminate reimbursable expenses entirely by issuing corporate cards. Others retain the reimbursement model for most employees and use cards for high-volume spenders. Understanding the trade-offs helps you find the right balance
| Reimbursable Expenses (Out-of-Pocket) | Corporate Cards |
Employee cash flow impact | High employee fronts the money | No company card pays directly |
Finance visibility | Low until report is submitted | Near real-time |
Fraud risk | Moderate receipts can be falsified | Lower with card controls |
Admin burden | Higher manual report processing | Lower with automated reconciliation |
Works best for | Infrequent spenders, small teams | Frequent travellers, high-volume spenders
|
The reimbursable expense model places financial burden on employees. For lower-income workers, fronting significant travel costs while waiting 30 days for repayment creates genuine financial strain. That’s worth factoring into your choice of system.
Conclusion
Choosing the right reimbursable expense management platform depends on your company’s size, workflows, and spending needs. The best solution should simplify expense reporting, improve visibility into business spending, and reduce manual work for both employees and finance teams. By evaluating features, integrations, pricing, and user experience, you can find a platform that supports efficient and accurate reimbursement processes as your business grows.
Frequently Asked Questions
What's the difference between a reimbursable expense and a business expense?
A business expense is any cost the company incurs during operations. A reimbursable expense is a specific type where the employee pays first and the company pays back.
What happens if an employee doesn't submit receipts?
Without receipts, the expense doesn’t meet accountable plan documentation requirements. If the company reimburses anyway, that payment becomes taxable income to the employee.
Can reimbursable expenses be deducted by the employee?
No. When a company reimburses an employee under an accountable plan, the employee cannot also deduct the expense on their personal tax return. The deduction belongs to the employer.
Are client-billed reimbursable expenses the same as employee reimbursable expenses?
No. When a consultant bills clients for reimbursable expenses, those are pass-through costs, not employee reimbursements. They’re treated differently in accounting and have different tax implications for the service provider.
Do Spendesk alternatives integrate with accounting tools like Xero or QuickBooks?
Yes, many Spendesk alternatives offer seamless integrations with accounting tools such as Xero and QuickBooks. Platforms like Expense 365, Zoho Expense, and Payhawk enable automatic syncing of expense data, helping businesses reduce manual work and improve financial accuracy
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