Even if your non-profit organization rarely needs to reimburse staffers, board members, or volunteers, there still may be times that reimbursement requests appear. Do you know how to handle these requests and repay stakeholders back for expenses related to your nonprofit’s operations? Having a formal reimbursement policy will help. Plus, it allows you be able to direct individuals with reimbursement questions to your document, which should reduce the chance of misunderstandings or disagreements.

Two Categories

In the eyes of the IRS, expense reimbursement plans generally fall into two main categories:

Accountable Plans. Reimbursements under these plans generally aren’t taxable income for the employee, board member, or volunteer. To secure this favorable tax treatment, accountable plans must satisfy three requirements: 1) Expenses must have a connection to your organization’s purpose; 2) claimants must adequately substantiate expenses within 60 days after they were paid or incurred; and 3) claimants must return any excess reimbursement or allowance within 120 days after expenses were paid or incurred.

Arrangements where you advance money to an employee or volunteer meet the third requirement only if the advance is reasonably calculated not to exceed the amount of anticipated expenses. You must make the advance within 30 days of the time the recipient pays or incurs the expense.

Nonaccountable Plans. These don’t fulfill the above requirements. Reimbursements made under nonaccountable plans are treated as taxable wages.

Reimbursement Policy Items

Your reimbursement policy should make it clear which types of expenses are reimbursable and which aren’t. Be sure to include any restrictions. For example, you might set a limit on the nightly cost for lodging or exclude alcoholic beverages from reimbursable meals.

Also be sure to require substantiation of travel, mileage, and other reimbursable expenses within 60 days. The documentation should include items such as a statement of expenses, receipts (showing the date, vendor, and items or services purchased), and account book or calendar. Note that the IRS does allow some limited exceptions to its documentation requirements. Specifically, no receipts are necessary for:

• A per diem allowance for out-of-town travel,
• Non-lodging expenses less than $75, or
• Transportation expenses for which a receipt isn’t readily available.

Your policy should require the timely (within 120 days) return of any amounts you pay that are more than the substantiated expenses.

Standard Rate Vs. Actual Costs

Finally, address mileage reimbursement, including the method you’ll use. You can reimburse employees for vehicle use at the federal standard mileage rate of 67 cents per mile for 2024, and volunteers at the charity rate of 14 cents per mile. Unlike employees, however, volunteers can be reimbursed for commuting mileage.

Alternatively, you can reimburse employees and volunteers for the actual costs of using their vehicles for your nonprofit’s purposes. For employees, you might reimburse gas, lease payments or depreciation, repairs, insurance, and registration fees. For volunteers, the only allowable actual expenses are gas and oil.

What Makes Sense

You don’t need to craft a reimbursement policy on your own. Contact us, and we can help ensure you include the elements that make sense given your nonprofit’s size, mission, and activities, and update it as your organization grows and evolves.