Is Reimbursement a Form of Compensation?

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Keep itemized receipts for reimbursable business expenses.
Keep itemized receipts for reimbursable business expenses. (Image: John Foxx/Stockbyte/Getty Images)

Reimbursement is not a form of compensation. It is money you receive for paying out of your own pocket for expenses that are a financial obligation of another party. Employers frequently reimburse their employees for company-sponsored travel and meals.

Reimbursement

Reimbursed expenses usually occur in an employer-employee relationship. The company agrees to reimburse its employee for expenses she incurs on behalf of the company. Typical reimbursable items include purchased airline tickets for business travel and meals paid for by the employee during the course of business. Employers also reimburse employees for money spent on gas for travel to and from company-sponsored events and cell phone bill charges related to business.

Reimbursement vs. Compensation

While reimbursement is a recovery of a cost incurred by you as an employee, your compensation is payment for your labor. The two are separate, which is why on your paycheck, your employer shows or should show separate line items for wages and reimbursement.

What the IRS Says About Reimbursement

The IRS allows you to deduct work-related expenses that are not part of your compensation. While commuting costs are not deductible, transportation expenses for going from one workplace to another are deductible. Business entertainment expenses and business gift expenses may be deductible. However, if your employer reimburses you for work-related expenses, you do not include the payment as part of your income. In addition, reimbursed expenses do not show on your W-2 as pay.

Insight

If you incur reimbursable expenses at your job, keep itemized receipts and copies for yourself when it's time to submit your expenses to your employer. Your employer cannot reimburse you without first verifying the expense. Your employer also needs the receipts for accounting purposes. Also, understand the company's reimbursement policies. For example, the company may have a limit on the price of reimbursable meals or type of airline ticket you purchase (coach versus business class).

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