What is Reimbursement?
Reimbursement is compensation provided by an organization for out-of-pocket expenses incurred or overpayments made by an employee, customer, or another party. Reimbursement for business expenses, insurance costs, and overpaid taxes are typical examples. Notably, reimbursement is not subject to taxation, making it distinct from regular compensation.
Key Takeaways
- Repayment for Costs: Reimbursement is compensation for business expenses, insurance costs, taxes, and other expenses.
- Common Business Reimbursements: These often include travel, meals, and other out-of-pocket expenses.
- Per Diem Rates: Daily allowances for business trips are standardized methods of reimbursement.
- Tax Refunds: These are a form of reimbursement returned to taxpayers from overpayments.
- Legitimate Encouragement: Organizations aim to ensure that reimbursements are for legitimate reasons only.
Understanding Reimbursement
Reimbursement is prevalently linked with business expenses. Companies usually have clear policies on reimbursing employees for out-of-pocket costs related to travel, including expenses for lodging, meals, ground transportation, and airfare.
Additionally, companies may reimburse for educational expenses like tuition for college courses or continuing education classes. Self-employed individuals can also reimburse themselves for business-related expenses, potentially qualifying for IRS tax deductions.
Types of Reimbursement
Insurance
In the insurance sector, reimbursement plays a significant role. A health insurance policyholder requiring immediate medical attention likely won’t have time to consult their insurer. They may need to pay for medications and services upfront, seeking reimbursement later. Policies often mandate that initial out-of-pocket expenses are covered before a claim is processed.
Taxes
Reimbursement commonly occurs with tax payments. Taxpayers may receive refunds after overpayment throughout the year via payroll deductions or quarterly estimated tax payments.
Legal
Reimbursement also extends to the legal field through reimbursement alimony. Courted by judges, it compensates an ex-spouse for supporting their partner’s financial growth and education before their divorce.
Requirements for Reimbursement
In the U.S., the General Services Administration (GSA) sets per diem rates for use in company reimbursements. By starting with these rates and adjusting them based on specific company needs, businesses can customize their reimbursement policies. Companies may also offer different rates for various roles or decide on set per diem rates covering all employee reimbursements.
Special Considerations
Organizations must validate that reimbursements are justified. Employees, policyholders, and taxpayers might claim illegitimate or inflated expenses. Internal controls and investigations are essential to eliminate fraudulent reimbursement requests. For instance, banks may reimburse customers for losses due to identity theft or data breaches only after validating the claims.
Example of Reimbursed Expenses
Imagine a sales representative attending an industry conference to stay updated, engage in learning sessions, and network professionally. During this company-approved trip, they incur $300 on hotel accommodations, $250 on transportation, and $100 on meals. Upon returning, they file a detailed expense report warning the $650 in expenses. After approval, this amount is added to their next paycheck via direct deposit.
Reimbursed FAQs
How Much Should I Be Reimbursed for Mileage?
Mileage reimbursement varies per company agreement. The IRS standard deduction rate can be a reference. For 2021, it was $0.56 per mile for business, $0.14 for charity, and $0.16 for medical and moving expenses.
How Do I Get Reimbursed From Medicaid?
Medicaid reimbursement policies differ by state. Some states allow patients to be reimbursed for out-of-pocket medical expenses, provided their Medicaid details to health care providers, though not all services accept Medicaid.
How Do I Get Reimbursed From My HSA?
Qualifying HSA expenses can be reimbursed by electronic transfer, check, or ATM withdrawal using an HSA-linked debit card.
How Do I Get Reimbursed From Medicare?
Reimbursement for out-of-pocket Medicare expenses involves filing a claim, either through the healthcare provider or personally. Medicare directly reimburses the medical service provider.
Related Terms: business expenses, insurance reimbursement, tax refunds, per diem rates, alimony, Medicaid reimbursement, Medicare reimbursement.
References
- Internal Revenue Service. "(Circular E), Employer’s Tax Guide", Page 41.
- Internal Revenue Service. “Tax Withholding for Individuals”.
- Internal Revenue Service. “Self-Employed Individuals Tax Center”.
- U.S. General Services Administration. “Per Diem Rates”.
- Internal Revenue Service. “Standard Mileage Rates”.
