Topic: General Posts

Subject: Expense Reimbursement for Sales Reps
Nancy Peterson
Member: 2001
Submitted on 07-31-18 3:23 am

My firm doesn't give sales reps company cars.  Do others in this situation reimburse mileage for sales reps in their territory at the IRS mileage rate?  or reimburse actual costs?  If you give employees a stipend, do you cover costs if they exceed the stipend amount, especially when the mileage is priced at the IRS rate?

We are currently giving stipends to our reps.  As a start-up firm with a small HQ staff, we tried to make it "easy to administer".  However our CPA firm suggested we had to audit the stipend usage or risk being seen as not having an accountable plan.  In my first audit, when mileage in a given period is costed at the IRS rate, costs exceed the stipend in both of the reps I audited. My CEO doesn't want to reimburse much beyond the current stipend amounts for daily travel.  We do pick up costs for airfare and longer trips such as travel to our headquarters for meetings.  Having been at much larger firms before, I've always reimbursed employees for mileage at the IRS rate. Wondering how others handle this.  

Nancy J. Peterson


Richard Archer
Member: 2009
Posts: 25

Subject: Re:Expense Reimbursement for Sales Reps

Submitted on 08-04-18 8:06 am.

Hi Nancy,

The only reason the CPA firm's point about an accountable plan is applicable is if your company has been paying a stipend/allowance without requiring the sales people to report costs and has also not included the amount of the employee's stipend/allowance as reportable taxable income to the employee and withheld taxes on the amounts reported as income. 

If your company provides a stipend, does not require any reporting of actual expense, reports the full amount of the stipend as taxable income to the employee, and withholds all income and payroll taxes on the amount of the stipend/allowance, then your plan is probably OK, whether the stipend is greater than or less than the employee's actual auto expenses. In that situation, it is the employee's responsibility to include the allowance in his/her income tax return and claim any related car use expenses as a business expense deduction. The employee determines whether to use the IRS mileage rate or actual costs.

If your company has been paying the stipend/allowance, but has not required accountability from the employee and has not reported the allowance as income or withheld taxes on the allowance then you potentially have a problem that could result in penalties and fines for your company.

Converting to a reimbursement arrangement in which the company reimburses employees for actual business use of their vehicle at the IRS mileage rate, requires substantiation of the business use, and requires the employees to submit mileage logs with their claims for mileage reimbursement is probably the least difficult program to manage and the one that will ensure your company avoids penalties for future payments and the employee avoids taxability of the reimbursement. You will still need to decide what to do about taking corrective action on the past improper reporting.

Here is the link to the main IRS publication covering fringe benefits and allowances. Sections 13 & 14 cover everything related to vehicle use and reimbursement programs. Section 2 covers reporting and tax withholding on fringe benefits and allowances.

Here is the link to the IRS publication that includes guidance to employees on how to report mileage allowances and claim vehicle deductions.

Hope these help you.

Best regards,

Richard Archer

Mitch Codkind
Member: 2015
Posts: 1

Subject: Re:Expense Reimbursement for Sales Reps

Submitted on 08-19-18 3:29 am.

The organization that I currently work out is doing the mileage reimbursement for sales reps at the IRS rate.  I think this is the best way to handle it even if it it results in weekly expense reports.  If you need a simple expense report system there are several on the market. We use Suti Expense