reimbursements

Reimbursements refer to payments made to repaying someone for expenses they have incurred. In business contexts, reimbursements typically cover costs advanced by employees or contractors on behalf of their employer, or costs incurred by organizations on behalf of clients or partners. Reimbursements differ from salary or profit because they restore the exact amount spent rather than compensating for time or value added.

Common forms include employee travel and meal expenses, office supplies, and client entertainment. Medical reimbursements occur when insurance plans, health providers, or governments pay back part of medical costs to patients or providers. Reimbursements can also occur in procurement programs when organizations reimburse customers or partners under agreed terms.

Process: Reimbursements typically require documentation: expense reports, itemized receipts, dates, and project codes. Many organizations set per-diem rates or caps and specify timelines. Approvals flow through finance or management. When using the United States accounting framework, under an accountable plan, reimbursements tied to substantiated expenses generally are not treated as income.

Accounting and tax: On the payer side, reimbursement costs are recorded as expenses and as a liability until payment is made. On the recipient side, reimbursements for accountable expenses are not typically taxable. Tax treatment varies by jurisdiction and policy; over-advanced reimbursements or those without substantiation can be taxable income.

Challenges and policy: Common issues include incomplete receipts, delayed submissions, policy ambiguity, and potential fraud. Clear reimbursement policies, timely processing, and automated expense management systems help reduce errors and support audit trails.