Accountable Plan
A written employer reimbursement arrangement that pays employees back for business expenses without the money counting as taxable wages — the business deducts it, and nothing lands on the employee's W-2 or gets hit with payroll tax.
An accountable plan does one thing: it moves a business expense off the employee's tax return and onto the company's, where it belongs. You front a legitimate business cost, the company reimburses you, and because the reimbursement runs through a compliant plan, it isn't wages. The business writes it off; you receive the cash tax-free. No new tax break here — just the difference between getting reimbursed correctly and getting it stuffed into your paycheck.
Three conditions have to hold, and the IRS spells them out in Treasury Reg. 1.62-2. The expense must have a real business connection. You have to substantiate it — amount, date, place, business purpose — within 60 days of paying it. And any advance that exceeds what you actually spent has to be returned within 120 days. Miss any of those and the reimbursement converts to a nonaccountable payment, which means it's added to your W-2 and taxed like salary. The 60- and 120-day windows are safe harbors; keep the receipts and you're inside them.
What runs through the plan: the business-use slice of your home office, cell phone and internet, mileage at the 2026 rate of 72.5 cents per mile, tools, professional development, business travel and meals. Some owners reimburse health premiums here too, though that has its own rules — for a more-than-2% S-corp shareholder the premiums still get reported on the W-2 — so check before you assume it works like the rest. The plan itself costs nothing to set up — adopt a short written policy, no IRS filing required.
For S-corp owners this is where the real money is. Reimbursements aren't wages, so every dollar you route through the plan instead of paying yourself as salary dodges the 15.3% combined Social Security and Medicare tax on the first $184,500 of 2026 wages (6.2% plus 1.45% each on the employer and employee side). If you're already over that wage base, the 2.9% Medicare portion still applies with no cap. Reimburse the home office personally and the deduction is gone — the S-corp has to pay it for the company to claim it.
One trap to avoid: paying yourself a round "expense allowance" with no receipts behind it. That's a nonaccountable plan whatever you call it, and the whole amount becomes taxable wages. Document each expense, tie it to a business purpose, and reimburse the actual number.
Practical Example
An S-corp owner reimburses $12,000 of documented business expenses through an accountable plan in 2026 — home office, internet, mileage, and a conference. Had that $12,000 instead been paid as W-2 salary (and assuming the owner is below the $184,500 Social Security wage base), it would have drawn 15.3% in combined Social Security and Medicare tax — about $1,836 across the employer and employee sides — on top of income tax. Run through the accountable plan, the $12,000 is tax-free to the owner and fully deductible to the S-corp. At a 24% federal marginal income-tax rate plus that 15.3% payroll tax, keeping the $12,000 off the W-2 saves the owner and company together roughly $4,700 a year.