Avoid IRS penalties, support your remote team, and stay tax-efficient—without drowning in paperwork.
Meet Sarah.
She runs a thriving consulting firm in Northern Virginia. Her 12-person team works entirely remotely, spread across three states. Like most leaders in her position, Sarah wanted to do the right thing—she offered her team a $150 monthly “remote work stipend” to cover home internet, phone bills, and ergonomic chairs.
Simple, right?
Not quite.
Come tax season, that generous gesture backfired: the reimbursement was fully taxable, showed up on W-2s, and reduced her team’s take-home pay by 30%. Worse, Sarah’s business owed payroll taxes on top of it. What began as a perk became a tax burden—for both sides.
So how do modern businesses actually reimburse remote work expenses the right way?
Let’s break down your options—and how JS Morlu can help you implement the most tax-smart, compliant strategy for your team.
Option 1: Taxable Reimbursements – Easy, But Costly
Let’s say you pay each remote employee a flat $150 monthly “stipend” to offset work-from-home expenses. If you run this through your payroll provider, it’s treated just like wages:
- Subject to income tax withholding
- Included in W-2 earnings
- Triggers employer-side payroll taxes
So, your employee might only see $100–$110 after deductions. Meanwhile, you’re paying an additional 7.65% in FICA and more in unemployment insurance. It’s clean. It’s easy. But it’s expensive.
When to consider this route:
✅ You don’t want to track receipts or require documentation
✅ You prefer to “set it and forget it”
❌ You don’t mind higher tax costs
❌ Your team won’t mind reduced take-home amounts
Option 2: Accountable Plans – IRS-Approved and Tax-Free
Now let’s talk strategy.
An Accountable Plan is a reimbursement arrangement that, when structured correctly, avoids all income and payroll tax obligations—for both employer and employee. That’s right: tax-free dollars in everyone’s pocket.
Here’s what makes a plan “accountable” under IRS rules:
- Business Connection – The expenses must be for business-related purposes (e.g., internet, office equipment used for work).
- Substantiation – Employees must submit receipts or expense reports showing when, where, and why the cost was incurred.
- Return of Excess – Any overpayments must be returned to the employer within a reasonable time.
If these conditions are met, the reimbursement:
- Is not taxed as income
- Doesn’t go on a W-2
- Doesn’t increase payroll tax liability
- Is still fully deductible by the company
When to consider this route:
✅ You want to maximize financial benefit for your team
✅ You’re okay collecting receipts or simple logs
✅ You prefer IRS-compliant processes
✅ You operate in a state like California, where expense reimbursement is legally required
Expert Tip: Tiered Reimbursement Plans Based on Role
At JS Morlu, we help businesses design tiered reimbursement policies—so you’re not offering a one-size-fits-all stipend.
Here’s how it could look:
| Employee Level | Eligible Reimbursements |
| Entry-Level | Internet, phone, shared workspace fees |
| Mid-Level | All of the above + home office furniture |
| Executive | All of the above + travel expenses + software |
As long as the reimbursement ties back to a documented business purpose and follows IRS guidelines, it can fall under your accountable plan.
Legal Considerations: It’s Not Just About the IRS
If you’re operating in certain states (we’re looking at you, California), employee reimbursement isn’t optional—it’s the law.
Failure to reimburse necessary business expenses could lead to:
- Wage & hour lawsuits
- Penalties from labor departments
- Damaged employer reputation
Even if you’re based elsewhere, the rise of remote work means you may have employees living in different tax jurisdictions. It pays to get compliant—before your next payroll run.
Which Option Is Right for You?
Let’s simplify this into a decision matrix:
| Factor | Taxable Stipend | Accountable Plan |
| Easy to implement | ✅ | ❌ |
| Requires receipt tracking | ❌ | ✅ |
| IRS compliant | ❌ | ✅ |
| Cost-effective for business | ❌ | ✅ |
| Maximizes employee benefit | ❌ | ✅ |
Why It Matters Now
The remote work genie isn’t going back in the bottle. Whether you’re managing a fully remote team or hybrid workforce, clear and compliant reimbursement practices are no longer optional—they’re a strategic advantage.
And in a tight labor market, offering tax-free reimbursements for essential work expenses shows your team you’ve got their back—without compromising your bottom line.
How JS Morlu Can Help
At JS Morlu, we specialize in aligning financial strategies with real-world operations. We’ll help you:
✅ Draft or review an IRS-compliant accountable plan
✅ Set up an easy-to-manage submission system for receipts
✅ Automate reimbursement tracking with cloud-based tools
✅ Ensure multistate compliance for remote employees
✅ Optimize deductions for the business side
Whether you choose simplicity or strategy, our tax experts are here to make sure you stay compliant, tax-efficient, and employee-friendly.
Next Steps: Book a Consultation
Still unsure which path fits your business? Let’s talk.
We’ll walk through your current setup, team needs, and state compliance obligations—and create a customized reimbursement framework that supports your people and protects your profits.