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Minnesota State University, Mankato
Minnesota State University, Mankato

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Employee Business Expense Changes - Tax Implications

The Internal Revenue Service (IRS) recently clarified its requirements regarding the prompt reimbursement of employee business expenses. Effective July 1, 2005, the IRS requires employee business expenses to be submitted for reimbursement within 60 days after the expense is incurred or the trip ends. If the request for reimbursement is not submitted within 60 days, the reimbursement becomes taxable income for federal, state, FICA, and Medicare tax purposes. Thus, withholding taxes must be taken from the reimbursement.

Expenses incurred 7.1.2005 and later are subject to this new requirement. The first business expense reimbursements that will be taxable will occur at the end of August if expense reports are submitted more than 60 days after the trip end date.

Although the university's policy has been to require that employees submit expense reports to their supervisor for approval within 5 days after incurring the expense or after returning from their trip, we have noticed that some employees hold off on submitting their reimbursement requests until the end of a semester. In light of this requirement, it is important that all employees submit their requests for reimbursement of business expenses promptly. Not doing so is an additional cost to both the employee and the university as the university must match the FICA and Medicare taxes paid by employees.

For additional information concerning this subject, please review the announcements section of the State of Minnesota Employee Self Service website, the same site you use to view your pay stub details.

Thanks for your assistance in helping the university comply with these policies.

Steve W. Smith, Comptroller
Business Services
236 Wigley Administration Center
Mankato, MN 56001