What Is Reimbursement?
Let me explain reimbursement directly to you: it's compensation that a company pays out for expenses you've covered out of your own pocket or for any overpayments you've made as an employee, customer, or another involved party. You'll see this in everyday scenarios like reimbursing business expenses, insurance costs, or even overpaid taxes. Keep in mind, unlike regular pay, this reimbursement isn't taxed.
Key Takeaways
Here's what you need to grasp: reimbursement is the money given back to an employee, customer, or other party to cover business expenses, insurance, taxes, or similar costs. For business, it often includes out-of-pocket items like travel and meals. Per diem rates are those daily amounts paid for business trips. Tax refunds count as reimbursement from the government for overpayments. And remember, organizations must ensure reimbursements are only for valid reasons to avoid issues.
Understanding Reimbursement
You probably associate reimbursement most with business expenses, and that's accurate. Many companies have clear policies on when they'll reimburse you for out-of-pocket costs, especially those tied to travel like hotels, food, ground transport, and flights. Beyond that, companies might cover other expenses, such as tuition for college or continuing education. If you're self-employed, you can reimburse yourself for business-related costs, and these might even be tax-deductible with the IRS.
Types of Reimbursement
Let's break down the types starting with insurance. In insurance, if you're a policyholder needing urgent medical care, you might not have time to check coverage, so you pay out-of-pocket for meds or services and seek reimbursement later. Some policies require you to pay upfront, like for fitness programs, and then get reimbursed up to a yearly limit if you participate actively.
Moving to taxes, reimbursement happens when you've had federal taxes withheld from your pay or made quarterly payments as a contractor, but you're entitled to credits for other taxes or expenses. The government issues tax refunds as reimbursement for those overpayments.
In the legal world, there's reimbursement alimony, which a judge orders as payment to an ex-spouse for the time and money invested in the other's career growth. For instance, if you worked full-time to support your spouse through college, and now they're earning, you might get this alimony upon divorce.
Requirements for Reimbursement
In the U.S., companies often rely on per diem rates from the General Services Administration (GSA), which sets rates for different cities and states. Your company might adjust these based on their own factors, like higher rates for executives or client-entertaining salespeople, or just stick to a fixed per diem.
Special Considerations
Organizations like businesses, insurers, and governments have a strong interest in making sure reimbursements are legitimate. You could file for a non-existent expense or inflate one, so they set up internal controls to spot fraud. In banking, if you're hit by identity theft, the bank investigates before reimbursing any stolen funds from your account.
Example of Reimbursed Expenses
Imagine you're a sales rep attending an industry conference to learn trends, attend seminars, and network. You spend $300 on a hotel, $250 on transport, and $100 on food from your own money. Back at work, you submit an expense report for $650, and it gets added to your next paycheck via direct deposit.
Reimbursed FAQs
On mileage: Depending on your company setup, you might get full reimbursement for qualified business trips. The IRS sets allowances like $0.56 per mile for business in 2021, with other rates for charity and medical uses.
For Medicaid: States handle it differently; some reimburse out-of-pocket medical bills if you provide your Medicaid info to the doctor, but not all providers accept it.
With an HSA: For covered expenses, reimburse yourself via electronic transfer, a check from the account, or ATM withdrawal with a linked debit card.
For Medicare: File a claim for out-of-pocket expenses, either yourself or through your provider, and Medicare reimburses the provider directly.
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