How does an S corp accountable plan work?

1. Business connection. The plan pays only for deductible business expenses you incur while performing services as an employee. Paying a flat amount whether or not you have expenses fails this test.
2. Substantiation. You account for each expense within a reasonable period, with amount, date, place and business purpose. Lumping expenses into broad categories is not enough.
3. Return of excess. Any advance or reimbursement beyond your substantiated expenses must be returned within a reasonable period.

Reasonable period safe harbors. Under the fixed date method, advances are made within 30 days before the expense, expenses are substantiated within 60 days after, and excess is returned within 120 days after. Under the periodic statement method, the company sends statements at least quarterly and you substantiate or return within 120 days.

If the arrangement fails any test, the payments are wages, reported on your W-2 and subject to payroll taxes. See Treas. Reg. §1.62-2 and IRS Publication 15.

Unreimbursed employee expenses are generally not deductible on your federal return. So the usual path is for the S corporation to reimburse the business share of your home costs under the plan.

• The space must be used regularly and exclusively for business, and as an employee, the use must be for the convenience of the employer.
• Business share is usually the office square footage divided by the home’s total square footage.
• Apply that share to actual costs: rent or mortgage interest, property tax, insurance, utilities, repairs and, for owners, depreciation.
• Submit a periodic statement with bills and the calculation. The company reimburses and books the expense.

Depreciation reimbursed for a home you own can matter when you sell the home. Plan for it.

Mileage. The company can reimburse at the IRS standard mileage rate with a log showing date, destination, business purpose and miles. Per the IRS standard mileage rates page, the 2026 business rate is 72.5 cents per mile for January through June and 76 cents per mile from July 1. For 2025 it was 70 cents. Commuting miles do not count. Under §1.62-2, reimbursing above the IRS rate makes the excess taxable.

Cell phones. Under IRS Notice 2011-72, a company-provided phone furnished mainly for noncompensatory business reasons is a tax-free working condition fringe. For a personal phone, the company can reimburse the business share with substantiation under the plan.

• The plan’s purpose and that it is intended to meet Treas. Reg. §1.62-2.
• Covered expenses: home office, mileage, travel, phone and internet, supplies, and anything else you choose.
• How to substantiate: receipts, logs and what each must show.
• Deadlines: submit within 60 days, return excess within 120 days, or a quarterly statement process.
• How advances work and how excess is returned.
• Who approves reimbursements, and adoption by board resolution or owner consent.

Pay reimbursements separately from payroll, not as part of your paycheck. If you have not been reimbursing during the year, talk to us before year end about how to catch up properly.

Best for: S corporation owners, including consultants, physicians, dentists, e-commerce sellers and other professionals, who pay business costs personally.

1. Free initial consultation. Tell us what you pay personally and how you reimburse today.
2. Fees quoted upfront, in writing. Transparent, fair fees in an engagement letter.
3. Plan setup. We draft the plan terms with you and set up a simple submission routine.
4. Calculations. We help compute home office and mileage amounts and book them correctly.
5. Filing. We reflect reimbursements and owner health insurance properly on payroll and Form 1120-S.