[Code of Federal Regulations]
[Title 26, Volume 15]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR31.3121(a)-3]

[Page 23]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
 
  Subpart B_Federal Insurance Contributions Act (Chapter 21, Internal 
                          Revenue Code of 1954)
 
Sec. 31.3121(a)-3  Reimbursement and other expense allowance amounts.

    (a) When excluded from wages. If a reimbursement or other expense 
allowance arrangement meets the requirements of section 62(c) of the 
Code and Sec. 1.62-2 and the expenses are substantiated within a 
reasonable period of time, payments made under the arrangement that do 
not exceed the substantiated expenses are treated as paid under an 
accountable plan and are not wages. In addition, if both wages and the 
reimbursement or other expense allowance are combined in a single 
payment, the reimbursement or other expense allowance must be identified 
either by making a separate payment or by specifically identifying the 
amount of the reimbursement or other expense allowance.
    (b) When included in wages--(1) Accountable plans--(i) General rule. 
Except as provided in paragraph (b)(1)(ii) of this section, if a 
reimbursement or other expense allowance arrangement satisfies the 
requirements of section 62(c) and Sec. 1.62-2, but the expenses are not 
substantiated within a reasonable period of time or amounts in excess of 
the substantiated expenses are not returned within a reasonable period 
of time, the amount paid under the arrangement in excess of the 
substantiated expenses is treated as paid under a nonaccountable plan, 
is included in wages, and is subject to withholding and payment of 
employment taxes no later than the first payroll period following the 
end of the reasonable period.
    (ii) Per diem or mileage allowances. If a reimbursement or other 
expense allowance arrangement providing a per diem or mileage allowance 
satisfies the requirements of section 62(c) and Sec. 1.62-2, but the 
allowance is paid at a rate for each day or mile of travel that exceeds 
the amount of the employee's expenses deemed substantiated for a day or 
mile of travel, the excess portion is treated as paid under a 
nonaccountable plan and is included in wages. In the case of a per diem 
or mileage allowance paid as a reimbursement, the excess portion is 
subject to withholding and payment of employment taxes when paid. In the 
case of a per diem or mileage allowance paid as an advance, the excess 
portion is subject to withholding and payment of employment taxes no 
later than the first payroll period following the payroll period in 
which the expenses with respect to which the advance was paid (i.e., the 
days or miles of travel) are substantiated. The Commissioner may, in his 
discretion, prescribe special rules in pronouncements of general 
applicability regarding the timing of withholding and payment of 
employment taxes on per diem and mileage allowances.
    (2) Nonaccountable plans. If a reimbursement or other expense 
allowance arrangement does not satisfy the requirements of section 62(c) 
and Sec. 1.62-2 (e.g., the arrangement does not require expenses to be 
substantiated or require amounts in excess of the substantiated expenses 
to be returned), all amounts paid under the arrangement are treated as 
paid under a nonaccountable plan, are included in wages, and are subject 
to withholding and payment of employment taxes when paid.
    (c) Effective dates. This section generally applies to payments made 
under reimbursement or other expense allowance arrangements received by 
an employee on or after July 1, 1990, with respect to expenses paid or 
incurred on or after July 1, 1990. Paragraph (b)(1)(ii) of this section 
applies to payments made under reimbursement or other expense allowance 
arrangements received by an employee on or after January 1, 1991, with 
respect to expenses paid or incurred on or after January 1, 1991.

[T.D. 8324, 55 FR 51696, Dec. 17, 1990]