Create a Reimbursement Plan for Nonprofits

While nonprofit organizations may not frequently encounter reimbursement requests, it’s essential to be prepared when they do arise. Whether it’s reimbursing staff, board members, or volunteers, having a clear reimbursement policy in place is crucial.

Understanding Expense Reimbursement Categories

1. Accountable Plans:
   • Under accountable plans, reimbursements are generally not considered taxable income for employees, board members, or volunteers.
   • To qualify for this favorable tax treatment, accountable plans must meet three requirements:
     1. Expenses must be directly related to the organization’s purpose.
     2. Claimants must promptly substantiate expenses within 60 days of payment or incurrence.
     3. Any excess reimbursement or allowance must be returned within 120 days.
   • Advances provided to employees or volunteers are acceptable under accountable plans if they reasonably align with anticipated expenses. The advance should occur within 30 days of the recipient incurring the expense.

2. Nonaccountable Plans:
   • Nonaccountable plans do not meet the above requirements.
   • Reimbursements made under nonaccountable plans are treated as taxable wages.

Key Policy Considerations

Your organization’s reimbursement policy should address the following points:

1. Reimbursable Expenses:
   • Clearly define which types of expenses are eligible for reimbursement.
   • Consider any restrictions, such as setting limits on lodging costs or excluding alcoholic beverages from reimbursable meals.

2. Timely Substantiation:
   • Require claimants to submit documentation for travel, mileage, and other reimbursable expenses within 60 days.
   • Documentation should include an itemized statement of expenses, receipts, and relevant details.

Reimbursement: Standard Rate vs. Actual Costs

When it comes to reimbursing mileage expenses, organizations have two primary approaches: using the standard rate or covering actual costs. Let’s explore both options:

1. Standard Rate Reimbursement
   • Employees: You can reimburse employees for vehicle use based on the federal standard mileage rate. For 2024, this rate is 67 cents per mile. Employees simply track their business-related miles and receive reimbursement at this fixed rate.
   • Volunteers: Volunteers, on the other hand, can be reimbursed at the charity rate, which is 14 cents per mile. This rate recognizes the lower costs associated with volunteer work.
2. Actual Costs Reimbursement

Under this method, you reimburse both employees and volunteers for the actual expenses they incur while using their vehicles for nonprofit purposes.

• Employees: Reimbursement can cover various costs, including:

• Gas
• Lease payments or depreciation
• Repairs
• Insurance
• Registration fees

• Volunteers: For volunteers, the allowable actual expenses are limited to gas and oil.

Choose the approach that best aligns with your organization’s policies and budget. Whether you opt for the standard rate or actual costs, clear communication and documentation are essential to ensure fair and accurate reimbursements.

Conclusion

By having a well-defined reimbursement policy, you can streamline the process, minimize disputes, and ensure transparency for all stakeholders. Reach out to us if you have any questions.