In contrast with a business whose aim is to generate profit for its owners, a non profit organization is a legal entity organized and operated for a collective, public or social benefit. Non profits are deeply entwined into the social structure of the US. For that reason, the IRS has created very clear non profit expense reimbursement guidelines. It’s very important that you aren’t only aware of these guidelines, but that you implement them in an organized manner. 

As a non profit, the first thing you should be aware of is that any expenses directly related to running your organization or fulfilling its mission are considered reasonable, business-related expenditures. Therefore, when employees or volunteers make any purchases out-of-pocket, they are eligible for reimbursement, and if you follow the guidelines outlined by the IRS, this reimbursement won’t be counted or taxed as wages. 

The Skinny on Accountable Plans for Non Profits

The only way to reimburse employees and volunteers for business-related expenses for your non profit without them identifying as compensation is to follow the requirements of an “accountable plan” as outlined by the IRS.  Following an accountable plan is as straightforward as the IRS can get:

  • Expenses must be related to your non profit
  • An employee or volunteer must account for the expenses in a adequate and timely manner (generally within 60 days)
  • An employee or volunteer must return any excess reimbursement in a reasonable amount of time (no more than 120 days after receipt)

The IRS created these rules in an effort to prevent organizations from misclassifying payments that go to employees or volunteers as reimbursements when they are actually wages. After all, reimbursement payments don’t have to be reported under payroll taxes, and if there weren’t guidelines in place dictating how to handle such payments, non profits could call anything a reimbursement. 

If your organization is currently not following the non profit expense reimbursement guidelines outlined in an accountable plan, you’re giving money away in the form of payroll taxes. However, if you choose not to follow these guidelines, you’re able to reimburse employees or volunteers after the time limit and above reimbursement rates. You’re also able to reimburse employees or volunteers at a fixed amount, such as by offering an allowance or stipend. Like any other nonaccountable expense, those will be subject to taxes. 

Documenting Expenses

It’s important that you be able to prove that a purchase made by an employee or volunteer is business-related, and you accomplish that through adequate documentation. If a non profit can’t submit the proper documentation for reimbursement payments, the IRS will have no proof that they should be exempt from federal or payroll taxes, and any money spent absent proper accounting is considered employee compensation. 

The easiest way to ensure nonprofit-related expenses are thoroughly documented is to provide an expense reimbursement form that they can use to report expenses for reimbursement. This form should ask for the following information:

  • Who incurred the expense
  • What is the nature of the expense
  • When and where the expense was incurred
  • What the business purpose was for the expense

You should also have employees and volunteers keep all receipts and invoices, as well, to prove the validity of a purchase. For other expenses, such as travel made using personal vehicles, they should track them in a log or journal. 

Expense Reimbursement Policy

To keep the expense reimbursement process organized, it’s important that you set your own non profit expense reimbursement guidelines that all employees and volunteers are aware of. 

Clearly explain how travel and other expenses should be reported, what expenses are eligible for reimbursement and what the approval process will entail. If you set daily per diems, make sure you make employees and volunteers aware of them; the same goes for reimbursement rates. Though you’re welcome to reimburse one hundred percent of each payment, the best practice is to follow federal reimbursement rate guidelines to avoid any payments being subject to taxation. 

In your policy, make sure you cover the subject of auditing. Regularly scheduled internal audits should be a part of any healthy non profit’s procedures. These audits are intended to ensure your reimbursement processes are working properly, that documentation is adequately collected and organized, and the controls in place to protect against fraud and loss are holding steady. 

Your policy on mileage reimbursement should be given special attention since this expense is unique from other expenses such as meals, incidentals or gifts. Employees and volunteers should keep a mileage log that records their odometer at the beginning and end of each trip, the starting and final destination for each trip, the date and time of each trip, and the business purpose. With that information, you should be able to calculate the mileage and reimburse them appropriately.

To avoid having to calculate the actual expenses of using a personal vehicle for business travel, the IRS sets a standard mileage rate for each year. For miles driven while helping a non profit you can reimburse at the fixed rate of 14 cents per mile, while non profit business mileage can be reimbursed at the IRS standard mileage rate for businesses. Under the Tax Cuts and Jobs Act, non profits can no longer deduct any unreimbursed employee travel expenses.

Managing Travel Expenses

There are many different apps and SaaS products out there with the aim of managing business expenses, but effectively managing travel expenses is a different kind of animal. Many organizations still have their employees and volunteers manually track mileage in a travel log and record it in an expense report for reimbursement. This process does not inspire faith in the accuracy of the numbers reported, though, and there’s little accountability for employees and volunteers beyond hoping they’re being honest. Furthermore, it’s a huge time-suck for everyone who has to submit, review and approve mileage expenses. 

Travel is such a huge part of expense management that has been ignored for far too long. With CompanyMileage’s suite of expense management software – SureMileage, SureMobile and SureExpense – your non profit will finally be covered. Employees and volunteers will no longer need to rely on manual, inefficient processes to report expenses and receive reimbursements. SureMileage automates expense tracking, maintaining clear, concise records while eliminating instances of fraud.

Rather than unreliable GPS systems or self reporting 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 process from reporting an expense to receiving an reimbursement is automatic and streamlined.

One of the largest benefits our software provides for non profits is the ability to document and audit the entire expense management process. You can even set up daily per diems and flag certain behaviors in our system per your non profit expense reimbursement guidelines. 

Non profits are such a vital part of our society. Instead of focusing on how you’re going to account for expenses and ensure you aren’t violating IRS rules, you should be fulfilling your mission. CompanyMileage helps you do just that. We’ve worked with countless non profits 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.