Taxability of Expenses

When a faculty or staff member or student employee of Cornell University incurs an expense that is either paid directly by Cornell on a Procurement Card (PCard) or Travel & Meal (T&M) card or reimbursed, the expense is taxable to the individual who incurred the expense unless they (1) substantiate the expense, and (2) do so within a “reasonable time frame” as defined by the Internal Revenue Service (IRS). You are presumed to meet the reasonable time frame requirement if you substantiate your expenses within 60 calendar days after they are paid or incurred. Advances can also be taxable in certain instances (see Advances below).

Who is Responsible?

Reimbursements are taxable to the individual seeking reimbursement.

A PCard or T&M card expense is taxable to the employee to whom the card was issued, even if the underlying purchase was made for or on behalf of another person, because the person to whom the card is issued is ultimately responsible for the charges made on the card.

Time Limits and Required Approvals

Expenses reported after 60 days may be taxable. In all instances, expenses substantiated after 6 months will be taxable. University policies 3.2, Travel Expenses, and 3.14, Business Expenses, require you to obtain approval from your dean, vice provost, vice president, or their designee when reporting or requesting reimbursement for all expenses older than 6 months.

Substantiating Your Expense

You must provide proof of the expense amount; the time, place, and a description of the purchase; and the business purpose for the expense. Generally, you can substantiate an expense with a receipt. Under policies 3.2 and 3.14, there are limited instances when receipts are not required. Even when a receipt is not required under policy, the business purpose and a clear description of what was purchased is still required. You can substantiate these expenses by, for example, submitting an expense report in Concur or completing your PCard purchase documentation as required.

Advances

Advances will be taxable in the following situations:

• The advance is provided more than 30 days before the date you reasonably expect to incur the associated expense for Cornell University.
• The advance is not substantiated within a reasonable time frame (see Time Limits and Required Approvals above).
• You do not return the entire unsubstantiated advance within 120 days of receiving it.

These rules apply equally to travel advances, other expense advances, and project advances. Project advances should not be issued more than 30 days before the first anticipated expense.

Consequences of Missing the Time Limit

It is critical that you substantiate your expenses within the time allowed. If you do not, an expense you incur on a PCard, T&M card, or for which you receive reimbursement will be taxable. IRS rules require that the tax due on the unsubstantiated or late-substantiated expense be deducted from your Cornell University paycheck, resulting in receiving lower pay than expected.

The amount of tax deducted depends on your pay and tax withholding elections (e.g., Form W-4, New York IT-2104).

Example:

• An expense of $1,000 was not substantiated within a reasonable time frame and is, thus, taxable.
• The employee’s regular net take-home paycheck is $2,000, and the employee’s combined federal, state, and local tax rate is 40%, including Social Security and Medicare.
• The employee’s paycheck that includes the taxable expense will be: $1,600 [$2,000 regular net pay minus(-) $400 for the tax on the $1,000 ($1,000 x 40% = $400 of tax due)].