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FAQ: Tax on Late Employee Reimbursements

Background Information

  • What is the premise for expense reimbursements to be considered income? These are University business expenses.
  • The University of California has an established Accountable Employee Reimbursement plan compliant with IRS Regulation 162-2.  The campus has slowly migrated to a full-compliance program with IRS Regulations and OP Policy (G-28 and BUS-79).  When an expense reimbursement occurs outside the IRS requirements for an accountable plan, the reimbursement migrates to the treatment of a non-accountable reimbursement plan.  When this occurs, the burden of determining the tax treatment migrates from UC Davis to the employee.   The employee should consult with their tax professional about deducting the reimbursement on their tax return. 
  • Why are Preferred Booking Program expenses included in imputed income when the university already paid for this cost?
  • Utilization of the Preferred Booking Program system provides a convenient method to pay for university business. Policy and IRS regulations require that expenses be substantiated within 60 days. Substantiation is accomplished by reconciling the expense in AggieExpense.  If the expense is not reconciled, it is not allocated to the correct expense account nor reviewed by the designated supervisor/AggieExpense report reviewer thus not meeting the reconciliation criteria.
  • When was this policy change communicated?
  • Every effort was made to ensure travelers and administrative support teams were aware of the campus migration to IRS compliance.    Below is a list of publications including the information
       >    November 27, 2018 - Dateline
       >    December 18, 2018 - Dateline
       >    Aggie Travel Digest editions:  June, August and October 2018
       >    Supply Chain Management Newsletter January 2019.
  • What was the timeline for implementation? 

  • April 20, 2017: It was announced that the campus would be enforcing the policy of recording imputed income when receipts are over one year late effective July 1, 2017.   

    July 1, 2017:  There was concern that communication was not broad enough so the actual implementation of the 1-year timeline was extended to January 1, 2018. Multiple and simultaneous communications and system alerts were provided to persons submitting late travel reports sharing that had the campus policy been  implemented as planned, they would have received imputed income.

    January 1, 2018: We began imputing income for expense reports were completed one year after the end date.  Each notification for the imputed income explained the upcoming migration to the 60-day threshold. 

    Fall 2018:  Employees submitting reports 60 days after the travel end date began receiving individual specific email messages to alert them to the upcoming changes and as an incentive to turn in all outstanding reports.

    January 1, 2019: The campus migrated to full IRS compliance and began imputing income for travel reports submitted more than 60 days after the end of the trip/event.

    July 1, 2021: The campus migrated to full IRS compliance for all employee reimbursements submitted more than 60 days after the end or the trip / event.   For reimbursements of purchased goods the purchase date is the first day of the substantiation period. 
     

  • What is the Impact to my Paycheck.  What is meant by "imputed income"?  What is the impact? 
  • Imputed income occurs when the value of a transaction is added to your taxable wages and subsequently the corresponding taxes are withheld from your paycheck.   Imputed income will reduce your net pay by the amount of the corresponding taxes on the paycheck it was recorded.    
  • When will I be notified of the imputed income?  How will I know the amount?
  • You will receive an email  the month after you submit the late report.   The email will provide you with the AggieExpense Report Key and the amount of the imputed income.   Additionally, the imputed income will be reflected on your earning records with the code NCA, Non-Cash Award.  
  • What will the tax rate be? How do I know how much I will be taxed?
  • The tax rate will be the same as the tax rate of the employee's income, based on the W4 on file as well as the employee’s FICA eligibility. An employee can utilize the tax withholding estimator available at IRS.GOV  to determine the impact of the imputed income.
  •  How will the imputed income be reflected on my pay statement?
  • The Description of Service Code  NCA, Non Cash Award  is used to record imputed income on earning records.   
  • What is the timeline for the imputed income to impact my pay?
  • Although the 60 day metric is from the trip end date to the submit date, transactions are not evaluated for imputed income until the report is finalized and expense paid.  Typically, imputed income is on the check two months after the report was submitted.  However, if the report submission and finalization are in two separate months,  the time frame is longer.  Below is an example timeline where the report submission and finalization are in separate months:

    March 1st - Trip End date
    May 20th - Traveler submits AggieExpense report
    June 5th -  Travel report is finalized
    July - Tax Reporting and Compliance is notified of the late submission (based on May 20th)  and notifies the employee of the imputed income.
    August 1 - The employee's paycheck reflects imputed income and the associated taxes are withheld.
  • What if the taxes on the  imputed income will consume the majority / or all of my net pay?
  • Employees are notified of their late expense report imputed income a few weeks prior to the impacted payday to allow time for personal financial planning.  In situations where more time is required, please reach out to Tax Reporting and Compliance (afs-trcmail@ucdavis.edu). 

Process Information 

  • Do I have to  submit my report within 60 business days or within 60 calendar days of my trip/event end date?
  •  You must submit your report within 60 calendar days of the trip/event end date. For example, if you return from your trip on January 1st, you must originally submit your report in AggieExpense before March 2nd.   On a leap year,  it must be submitted before March 1st. 
  • My travel is going to be paid by a grant, but the funds will not awarded until the 60-day timeline passed.   How can I create the AggieExpense report before the funds are received?  
  • While the timing of funds can create additional administrative steps, it is important that administrative steps be followed to ensure  compliance with UC policies and IRS regulations.  There are two choices in this situation:

    1.    The best practice is for the department to get advance account approval from Sponsored Programs Office (SPO).   With the advance account approval, Contracts and Grants Accounting can set up a sponsored fund for the charges to post at the time of travel.

    2.  Second choice is for the department to charge against an unrestricted fund source and then transfer the cost once the grant funds arrive.  If this approach is chosen, the transfer must be completed within 120 days.  
  • I don’t know how to use AggieExpense. How can I submit my expense report in time?
  • AggieExpense is the campus designated vehicle to document travel expenses. If you are not familiar with the tool, you may wish to review the online resources at https://supplychain.ucdavis.edu/travel-entertainment/aggietravel and/or reach out to your department administrative support team.
  • The late travel report is for a very small dollar value. Is it really necessary to impute income on that small amount? It can't be efficient for the University to process such a small transaction.
  •  IRS penalties are based on errors found extrapolated over the wage base paid by the employer. Due to this methodology,  the University works to comply for all dollar amounts to avoid a small error creating a large financial liability.  
     
  • What is exactly meant by “submitted” within 60 days?
  • The employee must click the “submit” button in the AggieExpense report and the report must move onto the next step in the approval workflow.  The submission date can be seen in the Expense Report Audit Trail and is documented with the event description "UCD-User Submit Agreement".
     
  • What if I can't find the receipts?
  • You should submit your report within the 60 day requirement and complete the declaration of lost receipt. This will ensure that you are compliant with UC and IRS regulations.
  • I meant to clear a Preferred Booking Program expense but a year passed and now that expense is purged from the system and I am not able to clear the expense using AggieExpense. What should I do? 
  • These expenses are purged from AggieExpense after one year. Each of these transactions exceeds the 60 day IRS timeline and creates imputed income for the employee.  Beginning July 1, 2019 each purged transaction creates imputed income for the traveler.   Due to the volume of purged expenses, employees will not be notified ahead of time. 
  • How do I know if I have uncleared Preferred Booking Program expenses? 
  • Preferred Booking Program expenses that are less than one year old and waiting to be reconciled on an AggieExpense report are listed on Decision Support Report FIS421.
  • Does this apply to professional expenses?
  • Yes.  This is applicable to all employee reimbursements. 

Exceptions 

  • How do I apply for an exception?
  • The path for an exception request varies between UC Davis Health and UC Davis Campus employees.   

    UC Davis Health employees should send an email request to Dianne Dakis at Ddakis@cdavis.edu.  

    UC Davis Campus employees should send an email request to afs-trcmail@ucdavis.edu.  

    All exceptions must be supported by your unit's Chief Administrative Officer (CAO) or equivalent.   Travelers may wish to seek departmental  approval prior to submitting the request.    There is no guarantee that your exception request will be approved.  
  • I submitted my report on time, but it was returned for corrections and when I resubmitted the report it was more than 60 days beyond my trip/event end date. Will I be taxed?
  • The tax rule applies to reports that are originally submitted more than 60 days beyond your trip/event end date. As long as your report was submitted in AggieExpense within the 60 days following your trip or event end date, it will not be taxed per the IRS rules regarding late reports. If you receive a notice that this late report is generating imputed income, include the original (returned) AggieExpense report number on your exception request along with other supporting documentation illustrating the actual submission of the expense on a separate AggieExpense report.  
  • I inadvertently submitted an AggieExpense Request instead of an Expense report and it sat for some time before I followed up on the payment status and realized I submitted the wrong document.
  • As the traveler, you are responsible to ensure your reports are originally submitted within 60 days beyond the trip/event end date. In a situation like this, you may apply for a one time exception to this tax policy, however, there is no guarantee that your request for an exception will be approved.  
  • I used my travel card to pay for expenses on behalf of another employee. Will I be taxed?

  • If paying on behalf of a UC Davis employee, this is to be a one-time exception. UC Davis employees should apply for their own Travel Card. https://supplychain.ucdavis.edu/travel-entertainment/travel-card/paying-others

    For expenses paid on another traveler's behalf, you must submit your report within 60 calendar days of the trip/event end date. If there are any report submission delays that are outside of your control as the processor, please proactively notify Tax, Compliance, and Controls by emailing afs-trcmail@ucdavis.edu.

  • I reserved catering for an event using a no-cost agreement and the vendor submitted the invoice more than 60 days after the event ended. Will I be taxed for the cost of this event?
  • When a vendor or merchant does not issue a request for payment until after the trip or event end date, the 60 day count will begin on the invoice date. It is likely that the AggieExpense report will be identified as an exception to policy during the automated review process, however, please proactively notify Tax, Compliance and Controls by emailing afs-trcmail@ucdavis.edu.
  • My department requires all employees to submit travel documentation to our central office for preparation by a travel delegate. I gave my information to the delegate within the 60 days following my trip/event, but the delegate didn’t get the report prepared in time for me to originally submit the report within 60 days beyond my trip/event end date. Will I be taxed?
  • As the traveler, you are responsible to ensure your reports are originally submitted within 60 days beyond the trip/event end date.   If the employee believes theirs is an exceptional situation, you can request a one-time exception to policy.  In your request for exception please identify the timeline of your submission, supporting documentation for the timeline, and copy your delegate on the request for exception.   There is no guarantee that your request for an exception will be approved.  
  • What if I'm on leave?
  • Being on leave during the 60-day time frame will not excuse the campus from the IRS regulations, so we strongly suggest that you work with your department to submit the report within the 60-day time frame. When circumstances of your leave preclude timely submission, you may request an exception to policy. In your request, please cite the dates of your leave.
  • I found an expense for a trip that I forgot to include in my report. It’s now more than 60 days beyond my trip/event end date. Will the supplemental report for this expense be taxed?
  • Yes.
  • Are there any exceptions for grant funds?
  • There is no exception for payment fund source. The university is working on full IRS compliance with the regulations surrounding the Accountable Plan, which does not preclude any funding sources. 
  • I have a question that is not on this list. Who do I ask?
  • UCD Health employees should email Dianne Dakis at ddakis@ucdavis.edu
    UCD Campus employees should email Ricardo Buenrostro at rbuenrostro@ucdavis.edu