One of our clients, a youth soccer organization, sends players to a national tournament. The trip entails paying for airfare for the teenagers and chaperones as well as meals and lodging while at the tournament location. Plus there are miscellaneous expenses such as mileage or cab fare to and from the airport, tips to bellhops, and other miscellaneous expenses.
A few questions came up as the organization’s director was planning the trip. He’s not alone. We’ve encountered a slew of issues around travel and opportunities to manage it better, starting with…
Lack of accountability for travel expenses
The IRS has rules for travel. Lots of rules. Unfortunately being a nonprofit organization does not get you out of these rules.
If you reimburse someone for travel or other expenses, you must do so under an “accountable plan” to avoid having the reimbursement be considered taxable wages.
An accountable plan means (IRS Publication 463):
- Expenses reimbursed are for a nonprofit business purpose;
- Expenses are accounted for within “a reasonable period of time,” say 60 days;
- Any excess reimbursement or allowance is returned within a reasonable period of time, say 120 days.
To account for expenses, travelers need to provide:
- Detailed receipts showing date, vendor and what was purchased;
- An expense report documenting the business purpose, who was entertained, mileage driven, and other relevant information about the trip.
A “reasonable period of time” for providing the above documentation needs to be defined in your travel policies and procedures. Which brings us to….
No travel policies and procedures
We often run into nonprofit organizations winging it when it comes to travel reimbursement. With no travel policies and procedures, everyone is left to figure out what exactly can be reimbursed and what documentation, if any, is required. Can a glass of wine at dinner be reimbursed? Will the organization give travel advances? Will mileage be reimbursed and if so, what is the mileage rate? Which leads us to….
Misunderstanding the standard mileage rate
Each year the IRS issues a new standard mileage rate for business miles and one for charity. The standard mileage rate for 2019 is
- 58 cents per mile “driven for business use,” and
- 14 cents per mile “driven in service of charitable organizations.”
Some people interpret the 14 cent rate for charitable organizations as a cap on reimbursement allowed to employees and volunteers who drive their personal vehicles on behalf of the organization. This is an incorrect interpretation.
The purpose of the charitable rate is spelled out in IRS Rev. Proc. 2010-51 Section 5.01:
“A taxpayer may use the charitable standard mileage rate (published in an annual notice) to compute the charitable contribution deduction for use of an automobile in rendering gratuitous services to a charitable organization under § 170.”
Therefore the 14 cent per mile rate is for calculating the charitable contribution deduction when mileage is not reimbursed by the nonprofit organization. It is not intended to be used as the rate when reimbursement is made.
If a nonprofit organization chooses to reimburse mileage to staff and volunteers, they may pay any amount per mile up to the business standard mileage rate which, in 2019, is 58 cents per mile. Payment in excess of this rate would be considered W-2 wages to the recipient. (Not that we’ve ever run across a nonprofit paying more than the standard mileage rate!)
An “in between” rate we’ve seen used is the State of Florida’s mileage rate of 44.5 cents per mile. [Fla Statue 112.061(7)(d)1.a]. We have also seen organizations define their mileage rate as some other amount less than the IRS standard business mileage rate.
The mileage rate paid by the organization should be documented in the organization’s travel policies and procedures, along with the documentation requirements to be reimbursed.
Travel policies and procedures can also clear up…
Confusion over travel advances
It’s a legitimate concern. As described in the youth soccer organization example at the start of this post, chaperones accompany young people on a trip to play in a multi-day soccer tournament in another state. Imagine the cost of eating out for 20 teenagers over several days! It might be asking a lot for the chaperones to pay for these expenses up front and then be reimbursed.
You could give the chaperones responsible for paying for meals a travel advance based on a per person budget for meals. The travel advance would need to be accounted for upon return and any excess funds returned to the organization.
Or you could give them an organization credit card, but that can be scary if there is no limit on the amount that can be charged.
Another option is a business purchasing card designed for small business.
Purchasing cards, called p-cards for short, act like a combination of purchasing card (with focus on business to business purchases) and credit card (allows for personal expenses such as travel and entertainment). P-cards must be paid in full monthly.
And here’s the best part – on P-cards you can set spending limits for card holders.
The P-card may also offer a mobile app to allow users to take a picture of their receipts and associate them with the purchases. No more saving little receipts then taping them to a blank piece of paper!
Two possible purchasing card programs to check out:
One Card from Capital One has a $35 annual per person fee, but that may be more than offset by the rewards component.
WellsOne Commercial Card has no fees, but also has no rewards program.
What travel management challenges have you experienced in your organization? Travel is a broad topic. We could easily do a follow up post on other travel issues. We’d love to hear from you!