Question

Which is not true of an accountable plan?

A. EEs must have paid or incurred deductible expenses while performing services as your EEs.
B. Amounts paid to EEs under an accountable plan are wages and are subject to income tax withholding.
C. EEs must adequately account to you for expenses within a reasonable period of time.
D. EEs must return any amounts in excess of expenses within a reasonable period of time.

Answer 1

The incorrect statement about an accountable plan is that amounts paid to employees under such a plan are considered wages subject to income tax withholding. Under an accountable plan, employees must document expenses and return excess amounts. These payments are treated as reimbursements, not wages.

Step-by-step explanation:

The question relates to the characteristics of an accountable plan, a reimbursement or allowance arrangement that meets certain IRS criteria. Specifically, the item which is not true of an accountable plan is the statement that 'Amounts paid to EEs under an accountable plan are wages and are subject to income tax withholding.' Under an accountable plan:

1. Employees (EEs) must have paid or incurred deductible expenses while performing services as your employees.
2. Employees must adequately account to you (the employer) for these expenses within a reasonable period of time.
3. Employees must return any amounts in excess of expenses within a reasonable period of time.

Amounts paid under an accountable plan are not wages and are not subject to income tax withholding if the plan meets these requirements because they are treated as reimbursements rather than income.