Employees Using Personal Credit Cards For Business Expenses

by Tom
(Montana, USA)

I have a client who has recently started letting an employee use her personal credit card to make company purchases and then get reimbursed via a check. (so she can rack up the rewards).

The issue I'm having with this is that it is then hard to keep track of things in Quickbooks as all the accounts are then attached to the employee check instead of individual entries per company coming out of the company account on the company debit card.

It just seems messy to me but I'm not sure how to explain this to the employer without them thinking I'm just being picky. Are there any pitfalls to this that I could use in my argument?

I feel your pain Tom but for me the issue isn't paying for business expenses using a personal credit card because there is an advantage to the employer ... s/he keeps their cash in his/her pocket longer. The employee is basically floating a loan with no interest to the employer.

Let's address your issue before I discuss mine.

I'm hoping the employee is submitting a formal expense report with all receipts attached that requires the boss's approval before reimbursement. If you follow my link, I discuss my preference on how to enter expense reports in QuickBooks that gives you and your boss an excellent audit trail. There's nothing "messy" about it. While my discussion pertained to a sole proprietor, you could also use this method for employee expense reimbursement.

Now let's discuss my issue ... are there tax consequences when an employee uses their personal credit card with rewards to pay for business expenses? There may be.

In Canada, CRA has an excellent webpage outlining their position on this. Canadian bookkeepers can find it by looking under businesses> payroll> benefits and allowances> loyalty and other points program.

The IRS does not seem to have as clear a position as the CRA. Accounting Today For The WebCPA has a good article on the topic addressing all the grey areas. It's titled Tax Strategy: Are some point/miles rewards now taxable?

I understand the issue to be that the IRS treats rewards more as rebate/discounts than income when related to business purchases on an employee's personal credit card. Your boss may want to ask his / her accountant if you should be booking a rewards discount on the business expenses (I.E. a reduction to the purchase price of the products purchased).

AICPA's "The Tax Advisor" has an article that addresses the issue when an employer has an employee reward program. It's titled The Tax Consequences of Point-Based Employee Reward Programs.

Hope this helps Tom.