Accountable plans and the 60-day substantiation rule at Illinois State University

• Author By Payroll Office
• August 21, 2025

For Illinois State University employees, understanding the rules of an accountable plan is essential for proper travel and business expense reimbursement. An accountable plan, as defined by the IRS, allows for the reimbursement of legitimate business expenses without the payments being considered taxable income to the employee. A key component of this plan is the requirement for timely and adequate substantiation of all expenses.

This is where the 60-day rule, a crucial part of the IRS's "reasonable period of time" standard, comes into play.

The 60-day substantiation rule

The IRS has established a safe harbor for what constitutes a "reasonable period of time" for expense substantiation. For an accountable plan to maintain its tax-exempt status, employees must adequately account for their expenses within 60 days after the expense was paid or incurred.

For travel expenses, the 60-day clock begins on the last day of the trip. It's important to remember that the clock doesn't stop when an employee submits their voucher; rather, it stops when the travel voucher is approved by the Budget Officer in Colleague. This distinction is critical. An employee might submit their voucher on day 59, but if the budget officer doesn't approve it until day 61, the reimbursement would be considered late and could be treated as taxable income.

Consequences of non-compliance

If a travel voucher is approved by the budget officer after the 60-day window, the reimbursement is considered late and is subject to different tax treatment. In this scenario, the reimbursement is classified as a "non-accountable" payment. This means:

• The reimbursement amount is reported as taxable income to the employee.

• The amount is included on the employee's annual Form W-2.

• The payment is subject to income tax withholding and payroll taxes (Social Security, Medicare, etc.).

This tax burden can significantly reduce the net amount of the reimbursement, which is why it is so important for employees and department administrators to adhere to the 60-day rule.

Extenuating circumstances and exceptions

While the 60-day rule is a strict standard, there are rare instances where a reasonable exception may be granted. Illinois State University's policies, in accordance with IRS guidelines, recognize that unforeseen circumstances can sometimes prevent timely submission. Valid exceptions are typically reserved for situations that are outside of an employee's control and include:

• An illness or injury that prevents the employee from submitting the necessary paperwork.

• A death in the family.

• Acts of nature or other unexpected events that prohibit the submission of travel reimbursements.

• Being out of the country for an extended period, and unable to submit receipts and a reimbursement request.

It is important to note that the following are generally not considered valid exceptions:

• Loss of receipts.

• Inadequate staffing or a heavy workload.

• Simply forgetting to submit the voucher in time.

If an employee believes their situation qualifies as an exception, a "Reasonable Justification for Late Submission of Travel Expenses" form must be completed, signed by the employee and their fiscal agent, and submitted with the travel voucher. The approval of this request is at the discretion of the appropriate university office and will be determined within IRS guidelines.

Best practices for timely reimbursement

To ensure travel and business expenses are reimbursed under Illinois State University's accountable plan, employees should:

1. Submit vouchers promptly: Do not wait until the last minute. The 60-day countdown begins on the last day of your trip and includes the time it takes for departmental and budget officer approvals in the Colleague system. Submitting a voucher soon after a trip is completed gives departments and budget officers ample time for review and approval.
2. Ensure complete documentation: The voucher must have all necessary information and supporting documentation to avoid delays. This includes receipts for all expenses, a clear business purpose, and, for mileage, a detailed log of the business-related travel.
3. Communicate with your budget officer: If there are extenuating circumstances that may delay the approval process, employees should communicate with their budget officer to ensure the voucher is processed in a timely manner and to inquire about the proper exception procedure.

By understanding and adhering to the 60-day substantiation rule and its exceptions, Illinois State University employees can ensure their travel reimbursements are processed correctly and avoid any unnecessary tax liability.