If your company is now fully or partially remote for the first time, the chances are that as a people ops professional, you are answering questions you hadn’t anticipated around things like home internet usage. Questions like:
- Now that we aren’t in an office, do I have to reimburse my team for their home internet usage?
- If I do reimburse them, is it taxable income, or can we reimburse them without taxing them?
- Is there a way to structure these reimbursements that is best for our team and the company?
Doing a simple google search, you may be overwhelmed with lots of opinions around this topic - but very few of them cite actual IRS or legal guidance. So how can you know if you’re doing the right thing?
While we aren’t lawyers or tax accountants (required disclaimer) - we wanted to pull together an easy guide for you that references actual laws and IRS regulations to help you navigate these complex questions. So let’s dig in!
The first question to consider is:
Are you required by your state to reimburse your team for their home internet usage if they are now forced to work remotely.
This is a complicated question that differs by state. The guidance is as clear as mud.
Below is guidance, segmented by state, showing specific case law and a description for how this may impact you. This information is meant to be informational, so please always check with your labor attorney for specifics regarding your program.
Requires reimbursement only if equipment purchased by employees for work-related purposes “cannot be used during normal social activities of the employee.” (8 Alaska Admin Code § 15.165)
An employer must reimburse their employees for all reasonable and “necessary expenditures or losses incurred by the employee in direct consequence or discharge of his or her duties.”
Note: Many articles discuss Internet reimbursement for California, noting that employees should be reimbursed for a “reasonable percentage” of expenses. The statute and notes of decision do not specifically discuss Internet expenses.
(Cal. Lab. Code § 2802)
District of Columbia
Employers must pay the cost of purchasing and maintaining any tools that the employer requires to perform the employer’s business.
(D.C. Mun. Reg. tit. 7 § 910.1)
Requires reimbursement of all “necessary expenditures or losses” an employee incurs within the scope of employment that are “directly related to services performed for the employer.”
(820 Ill. Comp. Stat. Ann. 115/9.5)
Employers must reimburse employees for expenses within 30 days after the employee submits an expense claim or provide a written justification for refusing the reimbursement within the same time period.
(Iowa Code § 91A.3(6))
Does not expressly require “work from home” expenses to be reimbursed but prohibits an employer from shifting its business costs to its employees and causing their wage rate to fall below the basic minimum wage.
(See generally, M.G.L.A. 149 § 148 and see also Fraelick v. PerkettPR, Inc., 989 N.E.2d 517
(Mass. App. 2013))
Follows the FLSA minimum wage protection approach but also requires employers reimburse all business expenses incurred by employees, including equipment and consumable supplies used in employment.
(Minn. Stat. Ann. § 177.24)
Requires employers to indemnify employee for any business expenses that an employee pays as a direct consequence of their duties and responsibilities as an employee, or as a result of the directions of their employer.
(Mont. Code Ann. § 39-2-701)
Requires employers to reimburse employees for expenses incurred at the request of the employer within 30 days after the employee submits an expense claim, except expenses normally borne by the employee as a precondition of employment.
(N.H. Rev. Stat. Ann. §275:57)
New York does not appear to have a specific law for this.
§ 198-c covers punishment when an employer is party to an agreement to pay or provide benefits or wage supplements to employees or to a third party or fund. If employer fails to pay agreed to amounts within thirty days after payment is required to be made, the employer shall be guilty of a misdemeanor upon conviction.
(N.Y. Lab. Law § 198-c (McKinney))
Except for amounts that are required under state or federal law to be withheld from employee compensation or where a court has ordered the employer to withhold compensation, an employer may withhold compensation only with the employee’s written authorization.
(NDCC. § 34-14-04.1 North Dakota DOL guide)
Requires employers to indemnify employee for all that the employee necessarily expends or loses in direct consequence of the discharge of the employee's duties as such or of the employee's obedience to the directions of the employer even though such directions were unlawful.
(NDCC. § 34-02-01)
Employees may be able to claim allowable unreimbursed business expenses when filing their state taxes.
Requires employer to indemnify employees from company expenses for all that the employee necessarily expends or loses in direct consequence of the discharge of the employee’s duties.
(S.D. Codified Laws § 60-2-160-2-1)
As always, you should confirm with your employment lawyer for any specific requests and actions.
If you’re already paying for your team’s home internet stipend, you might be wondering if you and your team are required to pay taxes on those funds.
Here’s when internet reimbursement is taxable income for your team:
- If you’re giving the additional money to cover their home internet usage as cash or in their paycheck.
- You don’t require receipts from your employees to receive the reimbursement.
The IRS outlines these requirements in what they call an “Nonaccountable Plan” in IRS Publication 15, Circular E.
The good news is that there is a way for your employees to be reimbursed and for this to be untaxed! This is what the IRS calls an “Accountable Plan” in the same IRS guidance.
To reimburse your team and not tax them:
They need to substantiate that you are reimbursing them for their internet charges - which can be done with a receipt.
This must be for the internet used for their remote work.
And it must be submitted within a reasonable time period (i.e. not going back 4 years to submit for reimbursement!).
How Compt can help
Using Compt’s nontaxable “Internet” spending category allows you to reimburse your team and not tax them. Because we require receipts for everything submitted through Compt, you’re able to serve your people better when addressing the unique challenges that have been caused by the COVID pandemic.