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Reimbursing Employees for Company Expenses

Sometimes it becomes necessary to reimburse an employee for some expense they incurred which rightfully, is an expanse of the company. This could be a tool or materials purchased while on a job, or mileage for running company errands, as well as many other things.

These amounts can be reimbursed to the employee by writing a company check, but often QuickBooks users would like to just add the amount to the employee’s next paycheck.

We’ll use mileage as an example; the process will be basically the same for other types of reimbursements.

Navigate to Lists | Payroll Item List. The Payroll Item button in the lower left will pop up a small menu. Choose New.

The Custom Setup method allows an approach more customized to individual QuickBooks users. Select that option.

In our case, we want to create an addition to a paycheck. We want to add the dollars that will reimburse our employee for the expense of using her vehicle for the business. That is the option selected in the graphic.

The next screen allows us to create a name for the payroll item. Fill in some meaningful name, Mileage Reimbursement would do in this example. Choose Next.

For reimbursements like this, the account QuickBooks will ask for will be an expense type of account. What expense did the employee incur? Is it small tool expense, job materials, or in our case, a vehicle expense?

You can understand the logic. The expense account selection is not different than if the company were creating a regular check for the expense directly to the vendor. In our case, we will use Automobile: Mileage Costs as the account.

The selection in the above window is crucial. If ever you are in the process of creating a payroll item and are unsure of the proper selection in this screen, call your accountant or payroll expert. Improper selection in this window will cause numerous problems.

The default, for a payroll addition will be Compensation. That means it will be subject to payroll taxes like federal withholding and social security. The amounts will be included as taxable wages on the W2 at year-end. That’s not what we want is it?

Clicking the down arrow will open a list, and we would select None.

Another tax setting screen follows this one. If the selection in the window shown above is made correctly, no changes should be necessary in the next one.

We are asked if the addition should be calculated based on quantity. In this case, yes, it is based on the quantity of miles being reimbursed.

Should it be added to gross pay or net pay. This setting won’t affect the taxable status, but reports will be much cleaner if we select Net Pay. That is, QuickBooks should do all payroll tax calculations, compute net pay, then add the dollars for mileage to the check.


The final window allows us to set a rate. As of this writing, the official IRS rate for business mileage is .56.

Click Finish and the payroll item is complete. Add it to the employee setup to any worker that routinely receives reimbursements on their paychecks. Or, add the item to paycheck detail anytime it is needed.


Hector Garcia CPA
Advanced Certified QuickBooks ProAdvisor

Hector Garcia CPA and QuickBooks/Excel Trainer

Hector Garcia CPA and QuickBooks/Excel Trainer

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