# Accountable Plan

> Treas. Reg. §1.62-2 — the only way a W-2 employer can pay mileage tax-free in 2026. Three rules, two deadlines, one big difference.

Category: mileage-and-vehicle-expenses
Updated: 2026-05-26
Canonical: https://everylastmile.app/glossary/accountable-plan

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An **accountable plan** is an employer reimbursement arrangement that meets the requirements of **IRC §62(c)** and **Treas. Reg. §1.62-2** — and therefore lets the employer reimburse business expenses to a W-2 employee **without the reimbursement being treated as taxable wages**.

**The three requirements (Treas. Reg. §1.62-2(d)–(f)):**

1. **Business connection.** The expenses must be reimbursable as ordinary and necessary business expenses incurred by the employee in performing services as an employee.
2. **Substantiation within a reasonable period.** The employee must substantiate amount, time, place, and business purpose (the same §274(d) elements that govern the underlying deduction) within **60 days** after the expense is paid or incurred (the regulatory safe harbor).
3. **Return of excess within a reasonable period.** Any advance or reimbursement in excess of substantiated expenses must be returned to the employer within **120 days** after the expense is paid or incurred (the safe harbor).

If all three are met, reimbursements are **excluded from the employee's W-2 wages**, are not subject to FICA, and are not subject to federal income tax withholding.

**Why it matters more than ever in 2026.** Under pre-TCJA law, a W-2 employee whose employer did not reimburse business mileage could deduct it as a miscellaneous itemized deduction subject to the 2%-of-AGI floor. The TCJA suspended that deduction; **OBBBA §70110 made the suspension permanent**. So for a W-2 employee in 2026, an accountable plan is no longer the "nice" way to get mileage paid — **it is the _only_ way** to receive mileage money tax-free. A flat car allowance with no substantiation requirement is a **non-accountable plan**, fully taxable as wages on the W-2, subject to FICA, and _not deductible_ by the employee.

**Worked example.** James is an outside sales rep covering Northern California for a wholesale distributor. He drives 24,000 business miles in the first half of 2026 (Jan 1–Jun 30; the 72.5¢ rate below applies to those miles, while miles driven from July 1 on are reimbursed at 76¢ after the mid-year increase).

- _Under an accountable plan at the IRS rate:_ 24,000 × $0.725 = **$17,400** reimbursed tax-free, no W-2 inclusion, no FICA. The employer deducts the $17,400 as a business expense.
- _Under a non-accountable flat $400/month car allowance:_ 12 × $400 = $4,800 added to his W-2 wages, ~$734 in additional FICA (employer + employee combined), and James gets **no deduction** because OBBBA §70110 killed it.

Same money, dramatically different tax outcome. The fix is procedural: substantiate within 60 days, return excess within 120, and document the plan.