Reimburse for expenses

You can add nontaxable expense reimbursements and taxable allowances as pay types to your employees' paychecks.

Expense reimbursements are nontaxable payments to employees for business-related expenses. Because these payments are non-taxable, they are not included in tax reports or W-2s. Expense reimbursements are not included in the base pay amount used for calculating percentage-driven deductions like 401k.

An allowance is a taxable payment to an employee that is separate from regular wages. It is typically paid with each payroll to cover job-related costs such as uniforms or auto usage, but it is taxable because it is not dependent upon actual receipts. Allowance amounts are not included in the pay base used for calculating percentage-driven deductions like 401k.

To add these types of pay to your paychecks:

In the left navigation bar, click Employees..
Click the name of an employee you want to set up for an allowance or reimburse for expenses.
Under the employee's name, click Edit employee.
Under How much do you pay this employee? click Add additional pay types if you haven't selected any other pay types, or click the pencil icon if you have.
At the bottom of the pay types list, click Even more ways to pay this employee
Select Reimbursement or Allowance and enter any details.

For more information about IRS requirements and definitions, see the IRS website. Search for "reimbursement" and choose a publication from the list.

See also