- Why is a reimbursement being taxed? It is not earned income.
The University of California has an established Accountable Employee Reimbursement plan compliant with IRS Regulation 162-2. This local policy change is bringing us into compliance with IRS Regulations and OP Policy (G-28 and BUS-79). While it is counter-intuitive that we would impute income when the employee hasn't been reimbursed from the campus. The reasons have to do with the UC's accountable plan for employee reimbursements under IRS Reg 1.62-2.
Travel reimbursements are considered nontaxable to employees because of the University’s accountable plan for employee reimbursements. One of the requirements for an accountable plan is for timely substantiation of expenses. When an employee reimbursement is not substantiated timely, the reimbursement migrates to being treated as a non-accountable plan reimbursement. All reimbursements under non-accountable plans are treated as wages (imputed income) and the burden to determine any tax deductibility is transferred to the employee. The explicit timeline in the UCOP policy and IRS code is 45 days. However, there is a section under the safe-harbor IRS language that allows us to use the 60 day mark.
When reimbursements are managed under a non-accountable plan the IRS requires the employer to impute the income as wages and it is up to the employee to deduct expenses, as possible, on their individual tax return. The campus does have a set of reimbursements that are under a non-accountable plan and automatically treated as wages. The most common is uniform allowances. The risk of non-compliance is that the IRS could void the University's accountable plan status and require all reimbursements to be treated as non-accountable.
- 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.
- What will the tax rate be? How do I know how much I will be taxed when my report is originally submitted more than 60 days beyond my trip/event end date?
- 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 through At Your Service Online to estimate income tax implications.
- 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. Due to this methodology, the University works to comply for all dollar amounts to avoid a small error creating a large financial liability.
- Do I have to originally 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 AggieTravel before March 2nd. On a leap year, it must be submitted before March 1st.
- 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 my trip/event end date. As long as your report was submitted in AggieTravel 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) Aggie Travel report number on your exception request along with other supporting documentation illustrating the actual submission of the expense on a separate AggieTravel report.
- How will the imputed income be reflected on your earnings?
- Beginning May 1st, 2019 the Description of Service Code NCA, Non Cash Award, is used to record imputed income on earning records. In earlier months, the code MV2 was utilized. The two codes act the same so no employees were disadvantaged by the earlier code.
- How will I know the amount of imputed income?
- The amount of imputed income will be generated directly from AggieTravel reports. You will receive specific notification, by email, of the amount of income imputed, and it will match your travel reports. Additionally, the imputed income will be reflected on your earning records with the code NCA.
- Is there a way of knowing which reports or expenses were taxable before the year is over?
- Taxation occurs per pay cycle, not on an annual basis. The annual total can be calculated using the email notifications and earning records.
- What is exactly meant by “submitted” within 60 days?
- The traveler must click the “submit” button in the AggieTravel 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".
- I inadvertently submitted an AggieTravel 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 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 AggieTravel report will be identified as an exception to policy during the automated review process, however, please proactively notify Tax Reporting and Compliance by emailing firstname.lastname@example.org.
- 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.
- 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 email@example.com or by sending an email directly to Diane Davies-Conley at firstname.lastname@example.org.
Include the AggieTravel report key, travel dates, timeline, explanation, name of delegate, contact info of delegate, and any other information that helps to explain the situation. There is no guarantee that your request for an exception will be approved.
- Why are CTS expenses included in imputed income when the university already paid for this cost?
- Utilization of the CTS system does 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 AggieTravel. If the CTS expense is not reconciled, it is not allocated to the correct expense account nor reviewed by the designated supervisor/AggieTravel report reviewer thus not meeting the reconciliation criteria.
- I meant to clear a CTS expense but a year passed and now that expense is purged from the system and I am not able to clear the expense using AggieTravel. What should I do?
- CTS expenses are purged from AggieTravel 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 CTS transaction creates imputed income for the traveler. Due to the volume of purged CTS expenses, employees will not be notified ahead of time.
- How do I know if I have uncleared CTS expenses?
- CTS expenses that are less than one year old and are waiting to be reconciled on an AggieTravel report are listed on Decision Support Report FIS421.
- I misunderstood the timeline to submit my report. I thought this started for expenses after January 1, 2019. Why are you taxing me for expenses incurred in 2018?
- Communications regarding the migration to an IRS compliant policy consistently stated that beginning January 1, 2019 reports submitted 60 days after the trip end date would create imputed income. If you have submitted a report in January that was for a trip that occurred longer than 60 days prior, it is consistent with prior communications that you are receiving imputed income.
- I did not know about the policy change; why wasn’t this 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.
I don't really read Dateline or Department newsletters. 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.
- 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 do 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.
- 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 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?
- What if the taxes on the imputed income wipe out my paycheck?
- Employees are notified of their late travel report imputed income a few weeks prior to the impacted payday. If the employee is concerned about the impact of the imputed income on their net pay, they may wish to seek advice from your financial adviser.
- When will I see tax imputed?
- 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 AggieTravel 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.
- My colleague received an exception in March 2019 and said it was a smooth request. Why are you not approving my exception for what is almost the same circumstance?
The one-time exception is a tool developed to help with the initial implementation and then in extenuating circumstances after the initial implementation phase. Because the driver for compliance is Federal IRS Regulations, and not UC Policy, the threshold for exceptions in a mature environment must be high. Rationale similar to the following examples will not be sufficient in the mature environment. (1) the traveler didn't understand or know about the policy, (2) the traveler misunderstood the effective date of the policy or (3) the traveler thought providing receipts to a delegate met the submission requirement
Given that UC Davis announced migration to IRS compliance in April of 2017, applied a phased implementation approach throughout including published articles and direct notification to travelers, the campus has migrated to a mature compliance environment for reports submitted after March 31, 2019. Travel reports surpassing the 60-day timeline, submitted after March 31 2019 must be the result of extenuating circumstances to qualify for an exception.
- Are there any exceptions for grant funds?
- There is not an exception for fund source of the payments. We are bringing ourselves into IRS compliance with the regulations surrounding the Accountable Plan which does not preclude any funding sources.
- My travel is going to be paid by a grant, but the funds were not awarded until the 60-day timeline passed. I couldn’t create the Aggie Travel report until after the funds were 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 SPO. With the advance account approval, Research 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 was expecting imputed income from a late travel report on my paycheck. The amount looks correct, however it is recorded as Moving Expenses. Why is this? Will it impact my W2 and tax reporting?
- The pay code "MV2" is being used to record imputed income generated from late travel reports. Employer paid relocation costs (pre-2018 TCJA category of costs) and imputed income generated from travel reimbursements of a non-accountable plan are taxed and reported the same. Once the campus transitions to UC Path, a more general imputed income pay code will be used to record this income. Beginning May 1. 2019 the code NCA , Non Cash Award, is being used to record the imputed income.
- I don’t know how to use AggieTravel. How can I submit my expense report in time?
- AggieTravel is the campus designated vehicle to document travel expenses. If you are not familiar with the tool, you may wish to review the on-line resources at https://supplychain.ucdavis.edu/travel-entertainment/aggietravel and/or reach out to your department administrative support team.
- What if the imputed income is applied to my check and later it is agreed to be incorrect?
- The imputed income will be reversed on your next paycheck if it was determined to be imputed in error. Once the imputed income is reversed, the associated taxes will be refunded.
- Does this apply to professional expenses?
- We will evaluate the applicability of this policy for professional expenses after December 31, 2019.
- Will university guests be taxed if their reports are originally submitted more than 60 days beyond their trip/event end date?
- We will evaluate the applicability of this policy for guest travelers after December 31, 2019.
- I have a question not included on this list. Who do I ask? Can I suggest my question be added to this list?
- UCD Health employees should email Dianne Dakis at email@example.com
UCD Campus employees should email Diane Davies Conley at firstname.lastname@example.org
The goal of this list is to provide as much information as possible to assist employee in understanding the policies and processes so that imputed income is avoided. When there is the requirement for imputed income, it is our hope that information on this site provides needed clarity and information. Please provide all recommendations for inclusion.