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September 19, 2025

Remote Employees, Reimbursements & Taxes: The Two Paths You Can Take

Your team’s remote. They’ve got internet bills, home office gear, maybe extra phone costs. And you—being the good boss you are—want to cover those costs.

But here’s the catch: how you reimburse them changes everything.

There are really only two paths:

Path 1: The “Easy” Way — Taxable Reimbursements

You write a check or run a flat $150 “remote work stipend” through payroll each month. It’s simple. Everyone knows what they’re getting.

But it’s taxable income.

That means:

You pay payroll taxes.
The employee pays income tax.
It shows up on the W-2 like salary.

Is it convenient? Sure. But it’s also expensive. You’re giving $150, and they’re pocketing maybe $100 after taxes.

Path 2: The “IRS-Approved” Way — Accountable Plans

Here’s where it gets better. With an accountable plan, you can reimburse employees tax-free.

That means:

No payroll taxes.
No income tax.
No W-2 reporting.

The business still deducts the expense, but the employee gets every penny.

The trade-off? Documentation. Employees need to show receipts, logs, or statements, and if you advance money, they need to return anything they don’t spend. It’s not rocket science—but it does require a process.

Reference: IRS Accountable Plans

Which Way Is Right for You?

That depends on your team and your appetite for admin work.

Don’t want to chase receipts? A flat, taxable reimbursement may be easier.
Want to maximize dollars to employees and reduce tax costs? An accountable plan is worth the setup.

And remember: some states (like California) require reimbursement for necessary business expenses. So in certain places, not having a plan in place isn’t just a missed opportunity—it’s a compliance risk.

Pro Tip: Tier Your Reimbursements

Not all roles need the same level of support. You can structure different tiers:

Base level: Internet + phone.
Mid-level: Add office equipment.
Executive level: Travel, tools, and more.

As long as the expenses are business-related and documented (if you go with an accountable plan), the IRS is happy.

Bottom Line

Two ways exist. One is easy but taxable. The other is structured but tax-free. Both can work—depending on your priorities.

What’s not optional? Thinking about it now. Because as remote work becomes standard, the way you reimburse can either create unnecessary tax costs or save your business (and your employees) real money.

Next Step

We’ll help you figure out the right reimbursement path for your business—whether that’s setting up an accountable plan or streamlining a taxable stipend. Talk to our firm today and get this off your plate.

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Securities offered through PFS Investments Inc., member FINRA & SIPC. Investment advisory services may be offered through PFS Investments Inc. or, where applicable, through a separately registered investment adviser. Paul D. Diaz is an IRS Enrolled Agent & IRS Certifying Acceptance Agent and provides ITIN/W-7, tax preparation, tax resolution, and tax advisory services through THE TAX CUTTERY®, an independent firm. Tax services are not offered through PFS Investments Inc. or its affiliates and are solely the responsibility of THE TAX CUTTERY®. This message is not intended as an offer or solicitation in any jurisdiction where such offer or solicitation would be unauthorized. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results.

Paul D. Diaz, EA, MBA, has unlimited representation rights before the Internal Revenue Service.