Accountable plan for an S corp

An accountable plan for an S corp is how the company pays its owner back for business costs the owner covered personally, without the payment turning into wages. It matters most in the last weeks of the year. An owner who has worked from a home office, driven a personal car to client sites and run the company’s software on a personal card since January has a year of business costs that are not in the company’s books, and the cleanest way to get them there closes on December 31.

The plan is the document; the books are the proof. This post covers the three tests in the regulation, what each common reimbursement needs before it is paid, a worked example from expense report to bank statement, and what to do with a year of costs that was never reimbursed. The QuickBooks steps for individual personal-card charges are in business expenses paid with a personal card; this post is about the plan that makes those reimbursements tax-free. Ledgerbrook keeps books and does not prepare returns, and every rule below is cited to its source.

What are the IRS requirements for an accountable plan?

The rules are in Treasury Regulation §1.62-2, which implements IRC §62(c). An arrangement is an accountable plan if it meets three requirements, and all amounts paid under it are then treated as paid under an accountable plan (Treas. Reg. §1.62-2(c)(2)):

1. Business connection, §1.62-2(d). The plan pays only for business expenses that would be deductible, paid or incurred by the employee “in connection with the performance of services as an employee of the employer.” A plan that pays an amount whether or not the employee incurs expenses fails this test outright, so a flat monthly allowance is wages.
2. Substantiation, §1.62-2(e). Each expense is substantiated to the company within a reasonable period. Travel, vehicle use and other expenses covered by IRC §274(d) need their full records: amount, time, place or use, and business purpose. Other expenses need enough detail for the company to see what each one was and that it belongs to the business. Lumping costs into a broad category such as “travel” or “miscellaneous business expenses” does not count.
3. Return of excess, §1.62-2(f). The employee has to return, within a reasonable period, any amount paid beyond the substantiated expenses. This mostly bites on advances.

Amounts paid under an accountable plan are excluded from the employee’s income, are not reported on the W-2, and carry no income tax withholding, Social Security, Medicare or FUTA (§1.62-2(c)(4)). Amounts paid under a plan that misses any of the three tests are wages, with all of those taxes.

What counts as a reasonable period

The regulation leaves “reasonable” to the facts, then gives two safe harbors (§1.62-2(g)(2)):

Safe harbor	Advance	Substantiation	Return of excess
Fixed date method	Within 30 days of when the expense is paid or incurred	Within 60 days after it is paid or incurred	Within 120 days after it is paid or incurred
Periodic statement method	Not set	Within 120 days of a statement the company sends at least quarterly	Within 120 days of that statement

Most small S corporations use the fixed date method in practice: a monthly expense report covers the prior month, which keeps every item well inside 60 days. A company with “a plan or practice” of paying more than was substantiated, to avoid withholding, loses both safe harbors for those years (§1.62-2(g)(3)), and a pattern of abuse turns every payment under the plan into wages (§1.62-2(k)).

Does an accountable plan have to be in writing?

The regulation does not say so. What it tests is how the arrangement works: the business connection, the substantiation and the return of excess. A written plan adopted by the board is still the practical standard, because it is the easiest way to show the IRS that the rules existed before the money moved, and because a one-owner S corporation has no other evidence that its reimbursements followed a policy rather than the owner’s convenience. Your CPA or attorney can supply one.

Can an S corp have an accountable plan?

Yes. An S corporation’s working owner is its employee, paid wages through payroll, so the corporation can reimburse that owner-employee under an accountable plan like any other employee. The plan matters more for an owner than for staff, for two reasons.

First, the owner has no fallback. Unreimbursed employee business expenses are a miscellaneous itemized deduction, and “you can no longer claim any miscellaneous itemized deductions that are subject to the 2%-of-AGI limitation, including unreimbursed employee expenses” (IRS Publication 529, 2025). A business cost an S corp owner pays and never gets reimbursed for is, in most cases, lost.

Second, the money is the owner’s either way. Without a plan, the alternatives are wages (taxed) or a distribution (not deductible to the company, and subject to the pro-rata rules when there is more than one shareholder). The accountable plan is the only route on which the company deducts the cost and the owner receives the money tax-free.

The plan is for corporations. A sole proprietor or single-member LLC that has not elected S corp status has no employee to reimburse; a business cost paid personally is an owner contribution. A partner is not an employee either; a partnership reimburses under its partnership agreement. Both are covered in business expenses paid with a personal card.

Common reimbursements and what each needs

The owner’s expense report has to carry the right record for each type of cost before the company pays it. The posting is the same expense account the company would use if it had paid directly, with Owner Reimbursements Payable (an Other Current Liabilities account) on the other side.

Reimbursement	What the owner submits	Rule behind it	Expense account in QuickBooks Online
Home office	Office and home square footage; the period’s rent or mortgage interest, utilities, insurance and repairs; the business-use percentage applied	IRC §280A(c)(1): regular and exclusive use, and for an employee, “for the convenience of his employer”	Home Office Expense
Mileage in a personal car	A log of date, miles, destination and business purpose, times the IRS standard mileage rate	§274(d): amount, time, use and business purpose (§1.62-2(e)(2))	Vehicle Mileage
Personal cell phone	The bill and the business-use share from the owner’s own records	§1.62-2(e)(3): enough detail to identify each expense as the company’s	Telephone
Business purchases on a personal card	The receipt and the business purpose	§1.62-2(e)(3); §274(d) for travel and gifts	The account the purchase belongs in, such as Software and Subscriptions
Travel away from home	Receipts for lodging and for any expense of $75 or more, with dates, place and business purpose	§274(d) and IRS Publication 463	Travel

Home office

The home office reimbursement is the one most owners ask about and the one with the most conditions. The office has to meet the IRC §280A(c)(1) tests: used regularly and exclusively as the principal place of business, as a place to meet clients, or similar. For an employee, which an S corp owner is, the statute adds that the exclusive use must be “for the convenience of his employer.” An owner whose company has no other office meets that more easily than one who has a desk at the company’s premises and works from home by choice.

The reimbursement is the business share of actual home costs, usually by square footage. A rented home uses rent; an owned home uses its share of mortgage interest, property tax, insurance, utilities and repairs, and whether to include depreciation is a question for the CPA. IRS Publication 587 describes the simplified $5-per-square-foot method as “an alternative to the calculation, allocation, and substantiation of actual expenses” on the taxpayer’s own return. An accountable plan needs each expense substantiated, so reimbursements are normally figured from actual costs.

Renting the office to the company instead does not work for an owner-employee: under IRC §280A(c)(6), the home office rules do not apply to items attributable to renting the space to one’s employer while using it to work as that employer’s employee. Renting the rest of the house to the company for meetings is a different rule, covered in the Augusta rule.

Mileage

The usual reimbursement is the IRS standard mileage rate times the business miles in the owner’s log, with the date, destination and business purpose of each trip. Publication 463 lets a car allowance stand as proof of the amount only for an employee who is not related to the employer, and an owner of more than 10% is related (see travel and per diem below), so the log is the owner’s proof to the IRS as well as to the company. For 2026 the IRS changed the business rate mid-year: 72.5 cents a mile for January 1 to June 30, and 76 cents a mile for July 1 to December 31 (IRS standard mileage rates, updated July 28, 2026). A reimbursement for a trip in May uses 72.5 cents, even if it is paid in December.

If the company owns the car instead, there is nothing to reimburse: the company pays the costs directly, and the owner’s personal use of the car is a taxable fringe benefit that goes on the W-2.

Cell phone

Notice 2011-72 lets a company provide its employee a cell phone, primarily for noncompensatory business reasons, without the employee being taxed on it, including incidental personal use (IRS Notice 2011-72). That notice is about phones the company provides. For a phone on the owner’s personal plan, the reimbursement is the business share of the bill, supported by the owner’s own record of business use; a fixed monthly phone stipend with no record behind it fails the business connection test.

Travel and per diem

Under Publication 463, a per diem allowance at or below the federal rate counts as proof of the amount of travel expenses, but not for an employee who is “related to your employer,” which includes anyone who owns, directly or indirectly, more than 10% of the employer corporation’s stock. A related employee “must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer.” For nearly every S corp owner, that means reimbursing actual travel costs from receipts.

Can you provide an example of an accountable plan for an S corporation?

Dana is the only shareholder and employee of Harbor Design, Inc., an S corporation, and works from a rented home with no other office. In January the board, which is Dana, adopts a written reimbursement policy. It says:

• the company reimburses ordinary and necessary business expenses Dana pays personally while working for the company, and nothing else;
• Dana submits an expense report with receipts and a business purpose for each item within 60 days after the expense is paid;
• vehicle use is reimbursed at the IRS standard mileage rate in effect on the date of each trip, from a mileage log;
• the home office is reimbursed at its share of actual home costs, measured as 300 of the home’s 2,000 square feet, which is 15%;
• any advance is made within 30 days of the expected expense, and any amount above the substantiated expenses is returned within 120 days;
• no allowance is paid without an expense report.

On December 10, Dana submits the report for October and November:

Item	Calculation	Amount
Home office	Rent $2,500 + utilities $350 + renter’s insurance $50 = $2,900 a month × 2 months × 15%	870.00
Mileage	790 miles (410 in October, 380 in November) × $0.76	600.40
Cell phone	$95 a month × 2 months × 60% business use, from Dana’s call and data records	114.00
Design software, paid on Dana’s personal card	Receipt dated November 4	240.00
Total		1,824.40

Every item was paid less than 60 days before December 10, so the report falls inside the fixed date safe harbor. The company records what it owes when it approves the report, then the payment two days later.

Date	Account	Account type	Debit	Credit
Dec 10	Home Office Expense	Expenses	870.00
Dec 10	Vehicle Mileage	Expenses	600.40
Dec 10	Telephone	Expenses	114.00
Dec 10	Software and Subscriptions	Expenses	240.00
Dec 10	Owner Reimbursements Payable	Other Current Liabilities		1,824.40
Total			1,824.40	1,824.40

Date	Account	Account type	Debit	Credit
Dec 12	Owner Reimbursements Payable	Other Current Liabilities	1,824.40
Dec 12	Operating Checking	Bank		1,824.40
Total			1,824.40	1,824.40

In QuickBooks Online, Intuit’s US help article records the first entry as a Journal entry: the liability account on the credit line with the employee selected in the Name field, and the expense accounts on the debit lines. The payment is then a Check or Expense to the employee with the same liability account as the category (Intuit: reimburse an employee, updated August 5, 2026). Attach the expense report, the mileage log and the receipts to the journal entry. The December 12 payment matches one withdrawal on the bank statement, and Owner Reimbursements Payable returns to zero.

The $1,824.40 does not go through payroll and does not appear on Dana’s W-2. It is a deduction for Harbor Design on its 1120-S, spread across the lines the expenses belong to.

The year-end catch-up for unreimbursed costs

The common case at year-end is an owner who paid business costs personally since January, kept the receipts, and was never reimbursed. The plan’s value is still there, with two cautions.

• The 60-day safe harbor is gone for older items. A cost paid in March and first reported in December is outside the fixed date method. Whether nine months is a “reasonable period” depends on the facts, and that is a judgment for the CPA, not the bookkeeper. Recent months are inside the safe harbor and can be reimbursed in the ordinary way.
• Reimburse before December 31 if the CPA agrees. The company deducts what it pays, and the owner is no worse off taking the money as a tax-free reimbursement than as a distribution.

The bookkeeping is the same entry at scale: one expense report per month or quarter, a journal entry crediting Owner Reimbursements Payable for each, and one payment. Items without a receipt or a business purpose stay out until the owner can document them. Then adopt the plan formally, if it was never written down, and move to a monthly report from January so the question does not come back next December. The owner deductions that sit on a personal return rather than in the books are in small business tax deductions.

What are common S corp mistakes to avoid?

Most S corp problems that reach a bookkeeper are one of these, and each has its own post:

• Too little salary, or none. Distributions with no payroll behind them invite reclassification. See S corp reasonable salary.
• Owner health insurance left off the W-2. The owner’s deduction depends on it. See S corp owner health insurance.
• Flat allowances instead of reimbursements. A round monthly “home office” or “car allowance” with no report behind it is wages under §1.62-2(d)(3).
• Personal spending coded as company expenses. It overstates deductions and is not a reimbursement of anything.
• Distributions out of proportion to ownership, and draws carried over from the LLC years. Both are covered in S corp bookkeeping.

Common questions about accountable plans

What is an accountable plan for tax purposes?

It is the IRS term, from IRC §62(c) and Treas. Reg. §1.62-2, for an employer’s reimbursement arrangement that meets the business connection, substantiation and return of excess tests. Payments under it are not income to the employee and are not wages. Payments under an arrangement that fails any test are treated as made under a nonaccountable plan and are wages.

Can an S corp reimburse a home office under an accountable plan?

Yes, if the office meets the §280A(c)(1) tests, including the convenience-of-the-employer rule for employees, and the owner substantiates the square footage and the actual home costs. The reimbursement is the business share of those costs, not a flat amount.

Can I set up an accountable plan in December?

A plan can be adopted at any time, and it governs reimbursements from then on. It does not change the timing rules for expenses already paid: items paid more than 60 days before they are reported are outside the safe harbor, and the CPA decides whether they can still be reimbursed under the plan.

Do accountable plan reimbursements go on the W-2?

No. Amounts paid under an accountable plan are not reported on the W-2 (§1.62-2(c)(4)). If a reimbursement is paid through payroll, it is set up as a nontaxable reimbursement, not as wages.

Is an accountable plan the same as a QSEHRA or an HRA?

No. An accountable plan reimburses business expenses. Health reimbursement arrangements reimburse medical costs, and a more-than-2% S corp shareholder cannot take part in a QSEHRA. How the owner’s health insurance is handled instead is in S corp owner health insurance.

When a year of costs was never reimbursed

An S corporation whose owner paid business costs personally all year, with receipts in a shoebox and nothing in the books, usually has a longer list: payroll that started late, distributions coded as draws, and months never reconciled. Catch-up bookkeeping rebuilds those months in the company’s own QuickBooks Online file, enters the expense reports the CPA approves, and closes the year so the 1120-S starts from complete books. Ledgerbrook charges $99 per month of backlog. The scope is on the catch-up bookkeeping page.

$99per month of backlog20% off 6+ months

When to hand this off: if the unreimbursed costs run back more than a quarter, or the company’s books for 2026 are not closed through September, the reimbursements depend on months of work that is not done yet. A free file review shows what is missing and prices the catch-up before anything changes.