What Is Reimbursement?
Reimbursement is repayment for expenses someone paid out of pocket on behalf of an organization or another party. Common examples include business travel costs, medical expenses covered by insurance, tax overpayments returned by the government, and court-ordered payments like reimbursement alimony. When handled properly (for example, under an employer’s accountable plan), reimbursements are typically not treated as taxable compensation.
How Reimbursement Works
- An individual pays for an expense related to business, health care, taxes, or another covered area.
- The individual files a claim or expense report with the reimbursing party (employer, insurer, government agency, or court).
- The reimbursing party reviews supporting documentation (receipts, invoices, claims) to confirm the expense is eligible.
- Approved amounts are paid back to the claimant, often via payroll deposit, check, or electronic transfer.
Common Types of Reimbursement
- Business expense reimbursement: Travel (airfare, hotels, meals), ground transportation, client entertainment, and education (tuition reimbursement).
- Insurance reimbursement: Policyholders pay out-of-pocket for covered services or programs (e.g., certain treatments or fitness reimbursements) and submit claims for repayment.
- Tax reimbursement/refunds: Overpaid taxes returned to taxpayers by state or federal authorities.
- Legal reimbursement (reimbursement alimony): Court-ordered payments compensating an ex-spouse for investments made in the other’s education or career.
Requirements and Rate Setting
- Employers and organizations typically define reimbursement policies that specify eligible expenses, documentation required, approval processes, and timing of repayment.
- Per diem: Organizations often use government per diem rates as a baseline for daily travel expenses and may adjust them for company policy or employee roles.
- Accountable plans: Employers often require receipts and a timely submission to treat reimbursements as non-taxable.
Special Considerations
- Fraud risk: Inflated or fabricated expense claims require internal controls (audits, approval hierarchies, receipt verification) to detect and prevent abuse.
- Identity theft and breaches: Financial institutions and insurers investigate suspected fraudulent transactions before reimbursing customers.
- Variability: Insurance, Medicaid, and other programs vary by provider and state, so eligibility and rules can differ.
Example
A sales representative attends a conference and pays:
– $300 for a hotel
– $250 for transportation
– $100 for food
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After returning, they file an expense report with receipts totaling $650. The company reviews and approves the report, then deposits $650 alongside the next payroll or issues an electronic reimbursement.
Frequently Asked Questions
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How much should I be reimbursed for mileage?
Employers may reimburse all business-related mileage costs; many use the government’s standard mileage rate as a reference. Check your employer’s policy and current official guidance for the applicable rate. -
How do I get reimbursed from Medicaid?
Medicaid administration varies by state. Some states allow reimbursement for out-of-pocket medical bills; check your state Medicaid rules and provide the necessary information to your provider. -
How do I get reimbursed from my HSA?
You can reimburse qualified medical expenses from an HSA by electronic transfer, check drawn from the HSA, or using an HSA-linked debit card, subject to account rules. -
How do I get reimbursed from Medicare?
Out-of-pocket Medicare expenses are typically reimbursed by filing a claim. Your provider can file it for you, or you can submit the claim directly for reimbursement to the service provider or yourself, depending on the situation.
Bottom Line
Reimbursement repays legitimate out-of-pocket expenses incurred on behalf of another party. Clear policies, proper documentation, and internal controls are essential to ensure timely, accurate, and non-taxable reimbursements when applicable.