Beginning January 1, 2024, any out-of-pocket expenses that are submitted for reimbursement more than 45 days after the transaction date—or end of the trip for travel expenses—will be treated as taxable income and need to be processed through Payroll. This only applies to expenses paid for with a personal payment method—card or cash—and does not apply to PCard, Travel Card, or CTA transactions.
While there have been occasional exceptions, the IRS’ increased attention to this matter has required us to more closely adhere to this policy. A number of U-M’s peer institutions have already altered their time requirements for the reimbursement of out-of-pocket expenses to comply with the IRS policy.
Details on submitting late out-of-pocket expenses for reimbursement:
- All out-of-pocket expenses incurred between September 1 through December 31, 2023, must be submitted by February 15, 2024, for tax-free reimbursement through Concur.
- After February 15, 2024, all out-of-pocket expenses submitted after 45 days from the transaction date or travel end date will be taxed and must be submitted through Payroll.
- Out-of-pocket expenses incurred prior to September 1, 2023, will be taxed and must be submitted through Payroll (effective immediately).
U-M’s Travel and Business Hosting Expense Policy (SPG 507.10-1) has always stated that “Employees must submit expenses via the university’s travel and expense system substantiating the amount, date, and business purpose of expenses, ideally within 10 days, but no later than 45 days.”
Frequently Asked Questions
1. What is happening?
Beginning January 1, 2024, any out-of-pocket expenses that are submitted for reimbursement more than 45 days after the transaction date—or end of the trip for travel expenses—will be treated as taxable income and need to be processed through Payroll. This only applies to expenses paid for with a personal payment method—card or cash—and does not apply to PCard, Travel Card, or CTA transactions.
2. Why is this happening?
U-M’s Travel and Business Hosting Expense Policy (SPG 507.10-1) has always stated that expenses must be reconciled within 45 days, but exceptions did occur on occasion. This adjustment is due to increased enforcement by the IRS of its policy regarding timing of the reimbursement of out-of-pocket expenses. A number of U-M’s peer institutions have already altered their time requirements for the reimbursement of out-of-pocket expenses to comply with the IRS policy.
3. When does this change go into effect?
January 1, 2024
4. What is an expense reimbursement?
An expense reimbursement is a business expense that has been paid by an employee using a personal payment method (personal credit/debit card or cash), including per diem and mileage reimbursements.
5. How do I submit an expense for reimbursement in a timely manner?
Reimbursements that are within the 45-day policy must be submitted through the university’s expense system. For more information on how to submit an expense report, please review the Procurement Services Concur webpage and the MyLinc Concur Training and Resources.
6. How do I submit a late expense for reimbursement?
- All out-of-pocket expenses incurred between September 1 through December 31, 2023, must be submitted by February 15, 2024, to be considered for tax-free reimbursement through Concur.
- After February 15, 2024, all out-of-pocket expenses submitted after 45 days from the transaction date or travel end date will be taxed and must be submitted through Payroll.
- Out-of-pocket expenses incurred prior to September 1, 2023, will be taxed and must be submitted through Payroll (effective immediately).
7. When is an expense reimbursement considered late/overdue?
Expenses that are submitted over 45 days from the transaction date—or trip end date for travel expenses—are deemed late and must be submitted through Payroll.
8. How do I submit an expense for reimbursement through Payroll?
If your department chooses to reimburse you for the overdue expense, it must be submitted to Payroll by your HR Admin as a TEA-“Taxable Expense Reimbursement” via the Additional Pay PAR process.
Taxable Expense Reimbursement (TEA) transactions are generally not allowable on Sponsored Project/Grants. Please reach out to your Sponsored Programs Coordinator if you have questions
9. What are travel expenses?
Travel expenses include airfare, lodging, transportation, baggage fees, rental car gas, conference registration, per diem, mileage, and other expenses directly related to travel. Travel expenses do not include supplies or other non-travel purchases made while on the trip. The 45 day submission period for travel expenses is calculated from the last day of the applicable trip rather than the transaction date.
10. I need to be reimbursed for an exam/certification but can’t submit the expense until I have passed/taken the course. How does that work?
Often exam/certification registration fees must be paid well in advance, however, the cost does not become a business expense until the employee passes the exam. Therefore, the expense must be submitted within 45 days of receiving the exam results to qualify for tax-free reimbursement.
11. Does this apply to reimbursements to guests?
No. While U-M policy is that all expenses be submitted within 45 days, only reimbursements to employees will be treated as taxable income if they are overdue.
12. How are virtual conference fees treated since there is no actual travel?
Since no travel is taking place, registration fees associated with a virtual conference should be submitted within 45 days of the registration’s transaction date (purchase date).
13. Can you give me an example of how travel expenses work?
Example of possible out-of-pocket expenses associated with a business trip:
An employee is traveling to a conference from April 23-25. On January 15 they purchase a $1,000 conference registration and $800 plane ticket. On March 20 they pay $200 as a required hotel room deposit. On April 22 they pre-pay $30 for the airline’s bag check fee. The employee goes on their trip from April 23 to April 25 and incurs expenses for the remainder of the hotel cost and ground transportation between the airport and hotel. On April 25 they return home and incur parking charges for parking their vehicle at the airport during their trip.
All these charges, plus any mileage to/from the airport, and per diems for their meal expenses, should be submitted within 45 days of their trip end date – April 25.
14. Who can I contact with questions?
For questions regarding the taxation of late expenses, email the Tax Department at [email protected].
For general procurement and travel policy questions, email [email protected] or call 734-615-2000 (option 3, then option 1).