Travel and Entertainment Expenses

 

7.  Our VP read an article about blood clots forming in coach passengers' legs during long flights.  This concerns us greatly, since our employees travel often to Japan.  We've come up with some options regarding our travel policy.  Under option #1, the company buys business class tickets.  Employees are then free to fly business class, which we encourage, or downgrade to coach and keep the difference.  Under option #2, we'll give employees the cash value of a business class ticket, less taxes withheld.  Employees can then buy whatever ticket they want.  Do these options square with the accountable plan rules?

 
The first option could pass muster, provided the company gets the refund, withholds taxes, and passes the remainder along to the employee.  The second option is easier to implement, since taxes on the value of the business class ticket are withheld up front.  The problem is that if an employee flies business class, he/she must make up the difference (i.e., the taxes withheld) out-of-pocket.  Employees' out-of-pocket business expenses are deductible as miscellaneous itemized deductions, subject to the 2% floor.  If employees can't get over that 2% hurdle, there's no recompense for their legitimate business expenses.
 

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