The Accountable Plan: The S-Corp Owner’s Secret Weapon for Tax-Free Reimbursements
If you run your practice through an S Corporation, you’ve probably noticed that some expenses blur the line between “business” and “personal.” If you have a qualifying home office, this would include your rent or mortgage payment. If you drive your vehicle for personal and business use, the same is true for your auto expenses. These aren’t purely business, but they’re not entirely personal either.
That’s exactly where an accountable plan comes in — an IRS-approved system that lets your S Corp reimburse you for mixed-use business expenses without those reimbursements being treated as taxable income or wages.
What Is an Accountable Plan?
An accountable plan is a formal reimbursement policy between an employer (your S Corp) and an employee (you, the shareholder). It allows the corporation to deduct legitimate business expenses it reimburses — and lets you exclude those reimbursements from income.
This is the only IRS-sanctioned method for an S Corp owner-employee to get money out of the business for personal outlays (like home-office expenses) without triggering payroll or income tax.
Tax Treatment of Reimbursements:
Under an accountable plan:
The S Corp gets a deduction for reimbursed expenses under IRC §162(a).
The shareholder-employee does not report those reimbursements as income under Treas. Reg. §1.62-2(c).
Without an accountable plan, those payments would be treated as either:
Wages, subject to payroll taxes; or
Distributions, which are not deductible by the S Corp.
Either way, you lose a deduction — and possibly pay unnecessary payroll tax.
Common Expenses Reimbursed:
Accountable plans are used for mixed-use expenses — items used partly for business, partly for personal life. Common examples include:
Home office (portion of mortgage interest, utilities, property taxes, insurance)
Home phone and internet (business-use percentage)
Mileage or actual expenses for business use of a personally owned vehicle
The IRS’s Three Requirements:
The IRS outlines three conditions in Treas. Reg. §1.62-2(d) for an accountable plan:
Business connection — Expenses must have a legitimate business purpose.
Substantiation — The employee must document the amount, date, time, and purpose (receipts, logs, or worksheets).
Return of excess — If the reimbursement exceeds actual expenses, the employee must return the excess within a reasonable time.
Fail any of these, and your plan becomes “nonaccountable,” meaning reimbursements get treated as taxable wages.
Determining a “Reasonable Period of Time:”
The IRS provides two different safe harbors for determining what counts as a “reasonable period of time” to substantiate expenses:
Fixed-Date Method (60 days): Under this approach, an employee must substantiate expenses within 60 days after they are paid or incurred, and return any excess reimbursements within 120 days after receiving them.
Periodic Statement Method (120 days): Alternatively, an employer may issue periodic statements (for example, every quarter) asking employees to substantiate or return outstanding reimbursements. Employees who comply within 120 days after the statement is issued are considered to have met the reasonable-period test.
Either approach is acceptable — what matters is that the company documents its policy and applies it consistently.
How It Works in Practice:
Here’s an example of what this might look like for a physician S-Corp owner:
Home office: 10% of your home is dedicated office space. You track utilities, insurance, and mortgage interest each quarter. You include 10% of those in your reimbursement worksheet.
Mileage: You track business miles driven and request reimbursement at the 2025 standard mileage rate of 70¢ per mile.
Home phone/internet: You use these 50% for business and include half of the expense in your report.
Timing: You reimburse yourself quarterly, consistent with the IRS’s definition of a “reasonable period of time.”
All these details go into a reimbursement form that you keep with your corporate records.
How Reimbursement Happens:
There are two clean ways to process the reimbursement:
Through payroll – Add a line for “expense reimbursement (non-taxable)” on your paycheck.
As a separate payment – Write a check or make an electronic transfer labeled “Accountable Plan Reimbursement.”
Either way, the key is that the reimbursement is documented and tied to substantiated expenses.
Why You Shouldn’t Just Pay Yourself Rent:
Some S Corp owners try to pay themselves “rent” for using their home as an office. That’s a mistake — and often more costly than helpful.
Here’s why:
Self-rental rules: If you materially participate in the S Corp, rent income becomes non-passive and can’t offset passive losses.
Taxable income: Rent payments are deductible to the corporation but taxable to you as rental income.
Lease complications: Proper documentation requires a fair-market lease and creates more audit exposure.
By contrast, an accountable plan reimbursement is deductible, non-taxable, and fully compliant — no lease, no self-rental headache.
Bottom Line:
For S Corp owners — especially physicians who use part of their home, car, and utilities for business — an accountable plan isn’t optional. It’s the IRS-approved mechanism that keeps reimbursements clean, deductible, and audit-proof.
Regular substantiation, a written policy, and consistent reimbursements (every month or quarter) are the keys to making it work.