How to write a travel & expense reimbursement policy for nonprofits

Charitable nonprofits pave the way for the unheard to be heard by creating and supporting healthy communities. If you are already running a nonprofit organization (NPO) or planning to start one, a nonprofit travel policy is a must-have.

A solid travel expense reimbursement policy for nonprofits helps you to meet the IRS guidelines and keep finances transparent to donors. Most importantly, it clearly spells out rules related to reimbursing employees who spend personal funds on organizational expenses. 

This guide will walk you through what every travel policy for nonprofits must have. Starting from common business expenses to expense reporting and reimbursement, we’ll cover every little detail to help you stay IRS-compliant. 

What are common non-profit travel expenses?

Both charitable and other nonprofit organizations are eligible to be tax-exempt under Internal Revenue Code Section 501(c)(3). To benefit from this, nonprofits must keep documentary evidence of travel-related expenses and reimbursements. 

Some of the most common business travel expenses for non-profits are: 

• Dining costs
• Per diem allowance
• Accommodation costs
• Miscellaneous businesses expenses (for example, tips to bellhops)
• Travel expenses (airfare, train ticket, ground transportation)
• Cost of organizing events (workshops, seminars, fundraisers, host fees)

Make sure your nonprofit travel policy outlines the list of expenses eligible for reimbursements and how employees can claim them. 

Nonprofit travel expense reports and itemized receipts

A nonprofit may be exempted from taxes but not from the following IRS regulations. 

The IRS Publication 463 clearly outlines rules on deductible expenses, reporting procedures, records for proving expenses, and ways to treat expense reimbursements.

Nonprofit organizations reimbursing their employees should do so under an accountable plan. Otherwise, these reimbursements will be treated as taxable wages. 

If you are opting for an accountable plan, here are a couple of relevant pointers to remember from the IRS Publication 463:

• Expenses reimbursed are towards nonprofit business purposes
• Excess reimbursements are returned within a reasonable period of time
• Expenses are recorded and accounted for within a reasonable period of time

When it comes to expense reimbursement, it’s super important to collect itemized receipts from your employees. These original receipts should clearly show how much money was spent, for what purpose, when, and where. 

Ultimately, these receipts help you to prepare and submit an accurate expense report for tax audit purposes. They can also help you identify violations of organizational policies or a grant agreement. 

Overall, your nonprofit travel expense report must have: 

• Location of travel expenses
• Employees involved during the expense 
• The business purpose of such expenses
• Exact dates when expenses were incurred

Nonprofit reimbursements as taxable wages

When a nonprofit organization doesn’t adopt an accountable plan, travel-related reimbursements will be considered as taxable wages. In such cases, the employer must:

• Include payments on the employee’s IRS Form W-2
• Withhold income taxes and share of Social Security and Medicare taxes from the payments
• Must pay 7.65% share of an employee's Social Security and Medicare taxes on the payments

An employee should:

• Deduct expenses as miscellaneous itemized deductions
• Report travel reimbursements as taxable income on tax returns

Nonprofit travel expense receipt exemption

According to the IRS Publication 463, there are certain situations when nonprofits are exempt from submitting travel expense receipts. These are:

• Non-lodging costs below $75
• A transport expense receipt that isn’t readily available
• Adoption of a per diem allowance method for out-of-town travel

Despite these exemptions, many nonprofit organizations ask their employees for receipts beyond a much lower threshold, just in case. 

Adopting per diem rates may help your nonprofit organization avoid expense reporting-related paperwork. But it’s wise to ensure that you meet federal guidelines and rates before implementing them. Also, treat the IRS Publication 463 as your go-to reference for guidelines around per diem plans. 

If you are opting for per diem rates, make sure to clearly state so in your nonprofit travel and reimbursement policy.

Mileage reimbursement for nonprofit travel

The mileage rates issued by the IRS dictates the deductible costs of operating automobiles for charitable and business purposes. The standard mileage rate for 2021 is:

• 56 cents per mile for business purposes
• 14 cents per mile for charitable organizations

Nonprofit organization employees and board members are eligible for business mileage reimbursement whereas volunteers will receive the charity rate. However, volunteers may receive reimbursement for commuting mileage which employees are not eligible for.

Some nonprofits reimburse actual business trip expenses instead of IRS standard mileage rates. Depending on the nature of engagement, actual expense reimbursement may cover the following items.

• Cost of gas
• Lease payments
• Repair-related cost
• Cost of tire changes
• Insurance and registration fees

An effective nonprofit travel reimbursement policy should clearly state the mileage reimbursement rules. Make sure these rules are compliant with IRS Topic No. 510 Business Use of Car. 

For ease of reimbursement calculation and tax exemption of mileage reimbursement, you may ask volunteers and employees to submit the following documents and applicable receipts:

• Destination 
• Date(s) of travel
• Purpose of visit
• Fuel cost receipt
• No. of miles driven
• Repair-related cost receipt

You should also encourage employees and volunteers to keep a copy of these receipts and documents. It will help them prove that the reimbursement doesn’t fall under taxable income. In case you are not reimbursing volunteer travel expenses, it will be considered a charitable contribution.

Nonprofit travel advances

Nonprofit organizations often pay advances to employees. Excess funds from these advances must be returned immediately at the end of the trip. 

If you are not comfortable with advances, you can also issue an organization credit card or a purchasing card (P-cards). There must be clear rules on what these cards can be used for. 

For example, employees can make business purchases with the credit card and personal expenses with the P-card. You can also set spending limits on both of these cards. 

Best practices for nonprofit travel policy

Apart from what we’ve mentioned above, your nonprofit travel and reimbursement policy should also clearly set policies around travel planning, approval, and reimbursement process. For example, you may consider adding these pointers to your policy:

• Timeline for submitting expenses
• Budget management audit processes
• Reimbursement rates for different items
• Steps to make a reimbursement request
• Estimate time for reimbursement approval 
• Preferred travel agencies for airline or hotel reservations

When you replace paper-based processes with a business travel management tool like TravelPerk, you can easily save more on flights, hotels, and benefit from a streamlined nonprofit travel management process for your nonprofit. The VAT recovery tool saves you and your business money, and you can even upload your travel policy to ensure 100% compliance.

Wrapping up

Creating a nonprofit travel and reimbursement policy is crucial for offering a seamless experience to travelers and complete transparency to donors. Make sure that you clearly mention every rule to help your employees stay compliant with IRS tax policies. 

Keeping things clear is essential for ensuring a successful travel policy. Everybody needs to know what, where and when they can spend when traveling for business. Get in touch with the TravelPerk team to discuss how you can start experiencing transparent, hassle-free corporate travel.