Employee expense reimbursement is the process by which your business pays back workers for out-of-pocket expenses, such as supplies, meals, or travel. In order for employees to get the quick reimbursements they want, they must first properly document their business expenses.
What you’ll learn
What you’ll learn
Key takeaways
- Businesses must have a well-outlined process for reimbursement for employee expenses, including a clear expense policy, spending limits, and an expense management process
- In 2026, most on-site business meals are no longer deductible, and the IRS mileage rate increases to 72.5 cents per mile in 2026, up from 70 cents in 2025
- An organized expense policy can prevent errors and issues, support compliance, and keep reimbursements classified as non-taxable
- Expense management software can help your organization automate reimbursement workflows and support better ongoing compliance
2026 brings updates to expense reimbursements, so this comprehensive guide will cover the reimbursement process, expense tracking, IRS regulations, policy enforcement, and more. It will also highlight updates to the mileage reimbursement and health insurance reimbursement requirements for your business.
Why employee expense reimbursement matters in 2026
In a nutshell, reimbursements protect employees from out-of-pocket financial burden by offering prompt repayment of business-related expenses. An organized reimbursement process can also help your business remain competitive while staying compliant. Employee expense reimbursement matters every year, but it is essential to pay attention to changes in reimbursable expenses for 2026.
What’s changing in reimbursement rules
Your business should pay close attention to updates regarding meal deductions and mileage. Getting organized at the beginning of the year will streamline your entire reimbursement process and make sure that your organization remains in compliance throughout the year.
Two key changes for 2026 are:
- Your business can no longer deduct the cost of on-site meals that are provided for convenience, such as a lunch offered during an on-site meeting. These expenses were previously 50% deductible.
- The IRS mileage rate for business-related travel increased to 72.5 cents per mile in 2026, up from 70 cents in 2025.
We also pulled together a quick snapshot of the most important reimbursement updates — and what they mean for employers — in the table below.
| Reimbursement area | 2026 changes | What employers should know |
| On-site business meals | No longer deductible when provided for convenience | Meals during meetings or on-site lunches are no longer deductible, even though they may still be reimbursable |
| IRS mileage rate | Increased to 72.5 cents per mile | Applies to business-related travel and affects reimbursement calculations |
| Expense policy enforcement | Greater emphasis on documentation | Missing receipts or unclear business purpose may cause reimbursements to become taxable |
Next, we’ll break down accountable and non-accountable plans — two approaches that determine whether reimbursements are tax-free or treated as taxable income.
Accountable plans vs. non-accountable plans
Reimbursements under an accountable plan are not taxable if they meet specific criteria set by the Internal Revenue Service (IRS). An accountable plan must have the following:
- A clear business purpose — that is, the expenses must be incurred while working as a representative of your organization.
- Clear records and receipts that show the amount, date, time, place, and business purpose for the expense.
In addition, employees must return any excess reimbursements paid in advance.
A plan is considered non-accountable when it does not meet one or more of these criteria. For example, if your employee does not have a receipt, if they are trying to get reimbursement for a personal expense, or if employees aren’t required to return advance payments that exceed the actual amount, then these reimbursements are taxable.
The difference between accountable and non-accountable plans can be easy to miss, but it matters for taxes. This side-by-side view highlights what separates the two.
| Feature | Accountable plan | Non-accountable plan |
| Business purpose required | Yes | Not required or not documented |
| Receipts and records | Required | Missing or incomplete |
| Excess reimbursements returned | Yes | No |
| Tax treatment | Non-taxable to employees | Taxable and subject to payroll taxes |
Reduce risk with basic reimbursement requirements
You can support administration, compliance, tracking, and keeping risks to a minimum by requiring the prompt submission of business receipts that clearly lay out the amount, date, time, place, and business purpose for the expenses. Your business should make it a point to enforce your reimbursement policy to reduce risk. Don’t allow workers to turn in late or half-completed expense reports.
Benefits of keeping up with compliance
Compliance puts your business in a position to enjoy tax deductions for qualified reimbursements, avoid unnecessary payroll taxes, have a ready audit trail, and support fraud prevention throughout your organization. Employees, in turn, will receive tax-free reimbursements for qualified expenses, reducing their tax burden and receiving fair treatment. You and your workers will both benefit from an efficient, organized reimbursement process.
Clear expectations for taxable vs. non-taxable reimbursements
When employees understand what taxable and non-taxable reimbursements are, you will prevent wasted time, errors, and frustration. Here are some ways to establish clear expectations for your team members:
- Make sure your employee manual outlines what an allowable reimbursement is, as well as the difference between taxable and non-taxable reimbursement. Offer examples.
- Provide annual training and updates that share the latest regulations related to reimbursements and other business-related policies.
- When an employee incorrectly submits an expense report, take the time to educate them on how to do it right the next time.
It pays to get expense reports and reimbursements right, saving you and your workers time and effort.
What are the best practices for setting up an employee expense reimbursement system?
When it comes to putting an employee expense reimbursement system in place, there’s a lot to consider. To help clarify where businesses should start, we asked Peggy James — a frequent OnPay contributor, small business coach, and CPA — for her take.
“The best place to start? Document, document, document. You need to have a written policy about employee expenses that defines what they are, how they should be treated, and what that means for employees.”
— Peggy James, CPA
Building on that foundation, here are a few additional best practices Peggy says to keep in mind as you formalize your reimbursement process:
- Explain the process for submitting expense documentation to be reimbursed along with what’s required.
- Provide training to employees that covers all of these. Include examples of specific types of business expenses and how they should be handled.
- Be clear about the consequences if employees don’t check all the boxes. The biggest problem is that if expense reimbursement isn’t handled properly, it will be treated as taxable income to the employee, meaning more money out of their pocket.
- On the flip side, describe the benefits of the expense reimbursement policy: Employees can pay for business related expenses directly, giving them some flexibility to take care of business expenses while they’re on the road and knowing they’ll be reimbursed for those expenses quickly.
Stronger emphasis on documentation and policies
From per diems to expense limits, it makes good business sense to clearly state your company policies in all of your internal communications. Your employee handbook should include timelines, correct documentation, and all requirements for reimbursement when it comes to your expense policy.
Growing push towards automation and better tracking
It’s essential to understand payroll costs. Simply put, you want to invest in payroll software that supports improved automation and efficiency for reimbursements, taxes, and regular payments. Automated payroll software leads to better tracking of reimbursements and any related issues. It also prevents errors, saves time and money, and supports compliance.
Moving on, let’s touch on the typical items you’re likely to come across if employees pay out of pocket when performing tasks.
What are the common types of business expenses eligible for employee reimbursement?
Most reimbursement questions fall into a few predictable real-world categories, including the following:
- Business travel expenses: From mileage rates to per diem meal expenses, business travel expenses are a common source of questions and uncertainty. Make sure all of your employees understand what is reimbursable, when to expect reimbursement, and what is changing in 2026.
- Office and remote work expenses: With the increase in remote work, many employees may need clarification on what office expenses are deductible or reimbursable. As a general rule, your remote employees can get reimbursed for internet service and cell phone bills, office supplies, equipment, and furniture. Make sure you check your local laws and regulations as well.
- Client meetings and entertainment: You can reimburse workers for legitimate entertainment expenses for client meetings. There must be a clear business purpose, thorough documentation, and the employee must be present during meals.
Again, it is important to note that your business can no longer deduct the cost of on-site meals provided for convenience, such as a breakfast or lunch served during an all-day business meeting.
“As more companies have moved to remote work, one question I hear a lot from clients is whether they qualify for a deduction for having a home office. If the taxpayer is an employee, the answer is typically no, which is understandably disappointing to most. If your business offers an employee expense reimbursement program that includes home office expenses, though, this could be a selling point that helps attract high-quality employees.”
— Peggy James, CPA
How to stay compliant and avoid tax mistakes
By following IRS rules, your organization’s accountable plans can ensure that reimbursements remain non-taxable for your workers. To stay compliant, make sure you only reimburse employees for business expenses incurred while they are working on your behalf. The funds must be used strictly for business purposes and must be accounted for and reported.
As an employer, you are responsible for outlining reimbursement rules and timelines and following through with reimbursements. Your employees are responsible for submitting accurate and timely expense reports that thoroughly outline expenses and their purpose. As a general rule, expenses should be submitted within 60 days.
Seamless with powerful support
“OnPay is pretty flawless. It puts me in control of data entry, lets me process multiple pay runs without extra cost, and lets employees access their own payroll records. I’ve had less-than-ideal experiences with other payroll companies, making mistakes and leaving me to clean up the mess. But OnPay’s customer support is great — any issue or question that I have encountered is addressed almost instantly.”
— Chris Loverro, The Hazel Room
How payroll software helps streamline reimbursements
Expense management tools and payroll software can streamline and organize all of your employee reimbursements. OnPay can help your business automate reimbursements, track approvals, organize receipts, and simplify both quarterly and year-end reporting. What does this ultimately mean for your business? Less administrative work. Fewer manual mistakes. Better compliance support. More time to focus on what you do best. In fact, payroll software might be the smartest part of your entire payroll budget.
Get your reimbursement process ready for 2026
As reimbursement rules shift in 2026, it’s more important than ever to get the details right. Changes to mileage rates, meal deductions, and documentation requirements can directly affect whether reimbursements stay non-taxable — or end up treated as wages subject to payroll taxes.
Reviewing your expense policy now, tightening documentation, and aligning reimbursements with your payroll process can help you avoid costly tax surprises, reduce admin headaches, and ensure employees are paid back correctly. When reimbursements and payroll work together, compliance is simpler — and your business is better prepared for the year ahead
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.