The Unique Expense and Mileage Reimbursement Rules for Employees of Nonprofits

As public entities providing services to the community, nonprofits must operate differently and be accountable for their actions in ways different than a privately owned businesses. Nonprofits are not only accountable to the IRS, they are also accountable to their private donors – who expect them to use their donations responsibly – and public grant funding that may ask that their grantees abide by certain stipulations. In short, nonprofits must be extremely studious with their accounting and money management, and expense and mileage reimbursement rules for employees should reflect that.

Most nonprofits rely on their employees and volunteers to adequately provide services to their service areas, but most don’t provide them with the means to transport themselves to each location. Instead, nonprofits ask that they use their own vehicles. In exchange, most nonprofits and charities will reimburse their employees and volunteers for mileage, but like private businesses, there is no federally mandated rule saying that they need to do so. Still, most choose to reimburse if they have the means, and the IRS even sets a standard mileage rate for nonprofits at $0.14 per mile, much lower than the mileage rate for businesses. This rate doesn’t change year over year.

When nonprofits reimburse their employees and volunteers for mileage, they can use the IRS standard mileage rate for employees or reimburse at a rate they have set themselves. No matter how they choose to handle reimbursing for travel and entertainment (T&E) expenses, though, transparency is a key factor, and there are some specific rules they must follow.

Accountable Plans

Nonprofits can either provide reimbursements under accountable plans or non-accountable plans. The basic difference is that if they follow an accountable plan, reimbursements won’t need to be reported by employees or volunteers as taxable income. If nonprofits follow the rules of accountable plans, reimbursements won’t be counted as compensation.

To meet the criteria of accountable plans, expenses incurred must relate to the nonprofit such as payment for travel or meals made while performing services for the nonprofit. Then, the expense must be reported adequately and in a reasonable amount of time (within 60 days), and any excess reimbursements must returned to the nonprofit within 120 days. If a reimbursement doesn’t meet these three criteria, then it falls under a nonaccountable plan, and the expense must be reported as taxable income.

Reimbursement Rules for Employees

Keep a Written Record of Expenses

Employees and volunteers should make it a habit to record their expenses to prove they are legitimate. For expenses such as food and supplies, there is usually a paper trail. For mileage, employees should log their starting and ending mileage and their starting and ending destination. The IRS requires these logs for audit purposes. Any nonprofit that does not require logs including this information for reimbursements to be fulfilled risks coming into issues during an audit.

While you must be able to corroborate these expenses in a written record, the IRS will consider a log prepared digitally on a computer to be a written record. This means if you are using expense tracking software at your organization, the IRS considers that to be adequate.

Keep Thorough Expense Reports

Nonprofits must also collect and keep expense reports prepared by your employees and volunteers. These reports can either be physical mileage tracker forms that they fill out and turn in or they can be prepared on a computer. All the IRS says on the issue is that “you should keep the proof you need” in some sort of log, diary or record that includes statements of expense, trip sheets or similar proof. No matter which method you choose to use for your workers, a thorough expense report should include:

• The date(s) an expense was incurred
• The place(s) an expense was incurred
• What was purchased
• For travel: detailed descriptions with odometer readings, distance traveled, etc.
• The business purpose
• The person who incurred the expense

One of the most often overlooked of these points is the business purpose. At the time, it may seem obvious to employees how an expense related to the work of the nonprofit, but during a future audit when the purpose must be proved, not having a record of it can become an issue.

Document Evidence of Purchases

Essentially, employees should save any receipts, invoices or other proof of purchase. The IRS requires that you keep documentary evidence of an expense, and together with the your thorough expense reporting, can support each element of an expense. You need to have both the report and documentation of the expense – not just one or the other. With both, you should be able to answer the where, when, how and why of the expense and reimbursements, giving you the level of detail nonprofits must maintain in their accounting.

Keep Itemized Receipts

Your documentary evidence – your receipts or invoices – should be adequate, according to the IRS. In other words, employees of nonprofits should make sure they provide itemized receipts or invoices to prove exactly what they spent on T&E expenses. This is important for being prepared for a future audit, but it is also more immediately important to a nonprofit. Itemized receipts can reveal inappropriate purchases that you don’t need to give reimbursement for. They can also reveal if any purchases were made that violate agreements for grants or public funding. For instance, grant money sometimes comes with certain stipulations on how it can be used, such as for travel but not for food. Itemized receipts can easily reveal what purchases were made by employees or volunteers and if they’re eligible for reimbursement.

Manage Employee Reimbursement with CompanyMileage

Save your nonprofit’s employees or volunteers precious time managing travel or other expenses. By using an expense management software such as SureMileage by CompanyMileage, employees will no longer need to rely on manual, inefficient processes like standard mileage sheets to report expenses and receive reimbursements. SureMileage automates expense tracking, maintaining clear, concise records while eliminating instances of fraud.

Instead of relying on unreliable GPS systems or employees’ self reporting their odometer readings, SureMileage works on a point-to-point system. Employees simply enter their starting and ending destination, and the system automatically calculates their mileage. Our software even integrates with all major accounting and payroll providers, so the reimbursement process from reporting an expense to receiving an reimbursement can be accelerated.

Nonprofits will always have people on the move – working on behalf of them to fulfill their mission in the community – so, staying on top of travel and expense management is a must. CompanyMileage has worked with countless nonprofits to help them manage their expenses more efficiently. Request a demo today, and learn how we can help you manage the expenses of your organization, as well.

Do you know as much as you think you do about mileage reimbursement? Take our mileage reimbursement quiz and find out!