Types of Employee Reimbursement: What’s Allowed and What’s Not

Managing employee reimbursement has become essential as companies strive to offer meaningful benefits while maintaining compliance with IRS rules. Getting employee reimbursement right means not only supporting your team with fair and timely payments, but also ensuring every process meets tax requirements—especially for health expenses and related benefits.

What Is Employee Reimbursement

Employee reimbursement is when an employer pays back an employee for business-related expenses the employee covered out of their own pocket. This can be travel for a client meeting, buying work supplies, or paying for a health appointment that’s included in a benefits plan. Understanding what’s allowed (and what’s not) according to IRS rules is crucial to maintaining compliant, tax-advantaged programs.

Common Types of Employee Reimbursement

Employee reimbursements usually fall into key categories that make sense for both businesses and their teams. Here are some of the types you’ll find in most reimbursement policies:

Business Expense Reimbursement

This covers money spent specifically for work. Common items include:

• Travel costs such as airfare, hotel, parking, rideshare, and public transit
• Meals during business trips or events
• Office supplies such as laptops, paper, and printer toner
• Training fees for courses or conferences
• Tools or equipment used for work

Companies often use an “accountable plan” so these payments are not considered taxable income for the employee.

Mileage and Travel Expense Reimbursement

When employees use their own car for work purposes, they can be reimbursed for mileage based on the IRS standard rate. In 2025, this rate is 70 cents per mile, but rates change over time, so it’s wise to check current IRS rules. Other reimbursable travel costs can include public transit, tolls, or lodging while on business.

Medical and Health Expenses Reimbursement

Health expenses often create questions, so knowing what’s allowed (and what’s not) is important for both employers and employees. There are several ways health-related reimbursements can be offered, such as:

• Individual Coverage Health Reimbursement Arrangement (ICHRA)
• Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)
• Group Coverage Health Reimbursement Arrangement (GCHRA)

These arrangements let companies reimburse health expenses that insurance might not cover, such as premiums, prescriptions, and some preventive care, while following clear IRS rules to keep reimbursements tax-free for employees.

Home Office and Remote Work Reimbursements

With hybrid and remote work on the rise, companies are increasingly reimbursing employees for internet bills, office equipment, and other related costs. Some states have specific requirements that call for covering necessary out-of-pocket remote work expenses.

Employee Stipends

While not all employers use them, stipends can add flexibility. These are flat allowances for specific perks—a monthly health stipend for gym memberships or a tech stipend for remote work hardware. Note that most stipends are taxable, as they usually don’t require strict documentation or business links like an accountable plan does.

What Does the IRS Allow for Employee Reimbursement

IRS rules are clear: to keep reimbursements tax-free under an accountable plan, expenses must have a business connection, employees must document them within a reasonable period, and any extra reimbursement must be returned—usually within 120 days. For example, employees need to turn in receipts within 60 days and return any extra money within another 60 days. If any step gets missed, the IRS may require employers to treat reimbursements as taxable wages.

What’s Not Allowed

Certain expenses are not permissible for tax-free reimbursement:

• Personal expenses unrelated to job tasks such as family vacations or personal shopping
• Late or unsubstantiated expense claims
• Expenses that violate company policy
• Non-business meals or entertainment
• Luxury or extravagant spending without clear business purpose
• Double-dipped expenses already covered elsewhere

Always review state law. For instance, some states require broader coverage of business expenses than federal laws.

Steps to an IRS-Compliant Employee Reimbursement Policy

A sound employee reimbursement approach reduces risk and increases trust. Here’s how to stay compliant:

1. Develop a written policy clearly listing allowed expense types with examples.
2. Spell out approval processes, deadlines for claims, and documentation needed.
3. Apply policies consistently to every employee.
4. Require proper substantiation—receipts, mileage logs, credit card statements.
5. Set and follow timelines for submitting expenses and returning advances.
6. Use reliable expense management technology that ensures compliance and reduces errors.

Health Expenses and Health Reimbursement Arrangements

Health-related reimbursements deserve their own spotlight. Many employers choose ICHRA and similar programs because they make it possible to reimburse for a wider range of health expenses—like doctor visits, prescriptions, dental services, and insurance premiums—without the heavy costs of a traditional group plan.

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ICHRA plans, managed by platforms like Venteur, let employers set specific monthly allowances for health expenses while employees pick how to use those benefits—maximizing flexibility for the modern workforce. Employees must still provide proof of minimum essential coverage and document all spending to keep their reimbursements tax-free.

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Employers gain greater control over spending and employees enjoy freedom to choose the best health options for them. This fits today’s hybrid and gig economy well, where career paths and locations vary much more than in the past.

Examples of Allowed Versus Not Allowed Reimbursements

The Shift Toward Flexible Benefits

US employers now understand that benefit flexibility keeps employees engaged and happy. Stipends, ICHRA, and custom allowances are increasingly common, letting companies attract and retain top talent in a competitive market—while limiting costs.

Platforms like Venteur have made it easier to craft compliant, customizable plans. Venteur’s system integrates health reimbursement with overall benefits, provides smart technology for claim processing, and stays updated with both IRS and state-level rules. This offers peace of mind whether you’re structuring a plan for 20 or 500 people.

Key IRS Rules and Documentation

Success here isn’t just about what’s allowed. Keeping documentation and timing right matters just as much. Here’s what every employer should remember:

• Maintain Receipts: Employees turn in itemized receipts for every expense.
• Business Purpose: Clearly state why the cost was necessary.
• Timely Submissions: Submit expenses within 60 days; return excess within 120 days.
• Documentation Storage: Hold onto records for at least three years, ready for any audit.
• Per Diem Options: For travel, using IRS per diem rates can simplify reporting—just be consistent in applying them.

Best Practices for Employee Reimbursement

• Write easy-to-understand policies, accessible to all staff.
• Offer clear examples—what’s in, what’s out.
• Use digital platforms to submit, approve, and track expenses for better transparency.
• Design flexible benefit models to allow for personal choice—especially for health expenses and wellness perks.
• Stay current: IRS rates and rules (for example, standard mileage rates) can change yearly, so update your policy at least once per year.

What Happens If Rules Aren’t Followed

If a company doesn’t collect proper documentation or doesn’t follow allowable plan rules, the IRS can treat the reimbursement as taxable income—possibly leading to more taxes for both employer and employee and missed benefit opportunities. That’s why regular training, audits, and updated systems are so important.

The Venteur Advantage

At Venteur, we believe health benefits should fit the way today’s workforce operates. Our platform allows companies of all sizes to design health reimbursement arrangements that adapt to each team’s needs—whether that means remote work, multi-state employees, or varied levels of coverage.

Venteur’s technology is simple, reliable, and backed by expert support every step of the way. We help employers focus their attention where it belongs: supporting their teams, with benefits that are easy to use, customizable, and cost-effective. When modern benefits are done right, everyone wins.