Research Corporation of the University of Hawaiʻi

Tax Treatment of Business Expenses (Service-Related) Decision Tree
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Refer to Policy 2.005 Identifying the Type of Expenditure for Purposes of Determining Tax Treatment, and Policy 2.006 Tax Treatment of Non-Service Financial Assistance for Individuals.
Is the expense (e.g., airfare, lodging, meals, No or any other type of reimbursement or allowance) being incurred as part of a
service provided by the recipient (i.e., is it a service-related expense)?
No
Is the payment being made for the actual service that is being provided?
Is the payment being made to, or on behalf of, an individual (i.e., is an individual the ultimate recipient)?
No
Yes
Yes
Refer to Policy 2.007 Tax Treatment of Compensation (Services, Rents, and Royalties).
Does the expense meet all of the following IRS accountable plan rules?
A third-party payment is any payment that is not paid directly to the individual incurring the business expense (i.e., when a program pays another vendor to provide services/goods such as airline tickets, accommodations, food, etc. to the recipient).
• Thethird-partyPOshouldincludethefollowing: o Expense’s business purpose.
 Recipient’s name.
 Recipient’s position/title.
No  Recipient’s employer’s name, if any.
o  A description of the activity (name, location, date(s)).
 Recipient’s country of residency and visa status.
• ThePrincipalInvestigatorisresponsibleforadequatelyexplainingthe
business purpose of the expense.
• The Fiscal Administrator’s approval of a PO payment or Non-Employee
Expense Payment Form constitutes an acknowledgement that the cost qualifies as a business expense.
o U.S. Citizens and Permanent Resident Aliens – If the cost qualifies as a business expense, the third-party PO payment may be approved online. If it does not qualify, the payment will need to be reclassified and may need to be reported to the IRS.
o Resident Aliens and Nonresident Aliens – If the cost qualifies as a business expense, submit the payment to RCUH Disbursing. If it does not qualify, submit the payment and UH Form WH-1 to RCUH Disbursing. Tax reporting will be required, and grossing-up for tax that should be withheld, may also be required.
• Iftherecipientsareunknownatthetimeofpaymenttothethird-party vendor (and the payment is treated as an advance to allowing tracking of the payment by RCUH Disbursing), the supporting information must be submitted to RCUH Disbursing at the time the advance is cleared.
If the payment is for an entity, refer to Policy 2.007 Tax Treatment of Compensation (Services, Rents, and Royalties).
• Exception–Ifthepaymentisforanemployeeofanentity, the employee was specifically invited by RCUH/UH, and the employee requests that his employer be reimbursed for his expenses because his employer paid for his expenses, continue to use this policy.
1.
2. 3.
The expense must be paid or incurred while the recipient is performing services for UH/RCUH (e.g., as an independent contractor, volunteer, etc.) or for his/her own employer, and the services must benefit UH/RCUH (i.e., the party that retained the individual) or his/her employer.
The expense must be substantiated and accounted for within 60 days after it is paid or incurred.
All excess advance payments or allowances must be returned within 120 days after theexpenseispaidorincurred.
Yes
Yes
No
The expense may need to be reported and/or withheld.
Yes
Is the expense being paid via a third-party vendor, rather than directly to the recipient (the individual)?
No
Is the expense being paid to a volunteer?
Yes
Additional requirements/considerations when paying a volunteer for an expense:
• Volunteersmaynotreceiveallowances.
No
No changes.
•
• • •
Volunteers may only be reimbursed if accountable plan rules are met and an original receipt, invoice, or other proof of payment is submitted for all incurred expenses.
Mileage is reimbursed at a specific rate. Nonresident aliens must be work eligible.
The program must consult with UH or RCUH Human Resources to determine if the person is correctly classified as a volunteer.
o UH (UH APM A9.041 and HRS Chapter 90).
o RCUH (Policy 3.220 RCUH Volunteers).
•
•
•
• •
The PO or Non-Employee Expense Payment Form should include the following: o Expense’s business purpose.
 Recipient’s name.
 Recipient’s position/title.
 Recipient’s employer’s name, if any.
 A description of the activity (name, location, date(s)).
The following individuals are presumed to have a business purpose, but a description of the activity must still be provided:
o Guest speakers providing services to RCUH/UH.
o Independent contractors performing services for RCUH/UH.
o Individuals invited for an RCUH/UH job interview.
o Employed business visitors (the services must be related to the visitor’s employment). o UH and RCUH volunteers.
Required Documentation:
o UH Form WH-1 (if the recipient is being paid directly).
The Principal Investigator is responsible for adequately explaining the expense’s business purpose. The Fiscal Administrator’s approval of a PO payment or Non-Employee Expense Payment Form constitutes an acknowledgement that the cost qualifies as a business expense.
o U.S. Citizens and Permanent Resident Aliens – If the cost qualifies as a business expense, the payment may be approved online. If it does not qualify, the payment may be IRS-reportable and the expenditure code should be changed before the payment is approved.
o Resident Aliens and Nonresident Aliens – If the cost qualifies as a business expense, submit the payment to RCUH Disbursing for processing. If it does not qualify, submit the payment to RCUH Disbursing for a determination of the reclassification of the expense, and the appropriate tax reporting and possible tax withholding that may be required.
No changes.
Yes
Is the expense being paid via a third-party vendor, No rather than directly to the recipient (the
individual)?
This decision tree provides a summary of the tax treatment of business expenses. RCUH Policy 2.008 Tax Treatment of Business Expenses (Service-Related), provides more detailed guidance and, therefore, must be read in conjunction with this decision tree.