What is Reimbursement?
Reimbursement explained in plain English. Learn how expense reimbursement works, what it means for freelancers, and how to request and track reimbursable expenses.
What Is Reimbursement?
Reimbursement is the act of repaying someone for money they have already spent on behalf of another party. In the business context, it most commonly refers to employers or clients repaying employees or contractors for legitimate business expenses that were paid out of pocket. For freelancers and independent contractors, reimbursement typically comes up in two scenarios: 1. As a contractor working for an agency or larger company — they may have a policy of reimbursing travel, software, or other approved expenses 2. As a freelancer billing a client — the client agrees to reimburse you for specific project-related expenses (printing, stock photos, travel) The key principle of reimbursement is: the person who spent the money is not entitled to keep it — it's a pass-through, and they should be made whole.
How Reimbursement Works
Standard Business Reimbursement Process 1. Employee/contractor incurs a business expense and pays for it personally 2. Collects documentation: receipts, invoices, credit card statements 3. Submits an expense report to the employer/client with all supporting documentation 4. Employer/client reviews the report for policy compliance and accuracy 5. Reimbursement is issued via payroll, direct deposit, or check — typically within 1–2 pay cycles Freelancer Reimbursement from a Client 1. Pre-agreement: The freelance contract specifies which expenses are reimbursable and under what conditions 2. Expense is incurred: Freelancer pays out of pocket for a project-related cost 3. Expense is documented: Receipts are saved and logged 4. Reimbursement is invoiced: Freelancer includes the expense as a separate line item on their next invoice, attaching receipts 5. Client pays the reimbursement as part of the invoice payment
Taxable vs. Non-Taxable Reimbursements
The IRS distinguishes between: Accountable Plan Reimbursements (Non-Taxable): - Expenses are business-related and substantiated with receipts - The reimbursement doesn't exceed the actual expense - Excess advances are returned promptly - The employer has an accountable plan in place Non-Accountable Plan Reimbursements (Taxable): - The employer gives a flat per-diem or allowance without requiring expense substantiation - Any portion not used for business expenses is taxable income - This is less common and generally less favorable for the worker
Example of a Freelancer Requesting Reimbursement
A freelance event planner is hired to organize a corporate gala. The client contract specifies that printing, venue deposits, and vendor payments up to $2,000 are reimbursable with receipts. The planner incurs: | Expense | Amount | Receipt | Reimbursable? | |---|---|---|---| | Custom invitation printing | $650 | ✓ | Yes — on invoice | | Venue deposit | $1,000 | ✓ | Yes — on invoice | | Personal lunch (not client-related) | $35 | ✓ | No | | Planner's own time | $0 | N/A | No — this is service fee, not expense | On the next invoice, the planner includes: - Service fee: $2,500 - Reimbursable expenses: $1,650 (printing + venue deposit) - Total invoice: $4,150
Reimbursement vs. Business Expense Deduction
These are different things: - Reimbursement: Client/employer pays you back for an expense you covered - Business expense deduction: You claim an expense as a tax write-off on your tax return because you weren't reimbursed If a client reimburses you for an expense, you cannot also claim it as a tax deduction — the reimbursement already made you whole. If the client does NOT reimburse it, you claim it as a deduction.
How It Relates to Invoicing and Business
Freelancers should always separate reimbursable expenses from their service fees on invoices. Combining them obscures your true billing rate and makes it harder to track which expenses are actually reimbursable. Eonebill allows you to add expense line items to invoices, keeping everything organized in one place. Related reading: - Expense Report: How to Track Business Expenses → - Tax Deductible Expenses: What You Can Write Off → - Invoice vs. Receipt: What's the Difference → Key Takeaways: 1. Reimbursement repays you for business expenses you paid out of pocket 2. Always get pre-approval for large reimbursable expenses before incurring them 3. Keep every receipt — no receipt means no reimbursement 4. List reimbursable expenses as a separate line item on your invoice 5. Reimbursements under an accountable plan are generally not taxable income Track every expense, invoice for everything — Try Eonebill Free