Accounting has many terms and definition that often sound the same, but mean different things, especially when calculating business transactions. Revenue refers to all money earned from a company’s business activities from all sources. Reimbursements, while considered revenue, technically don’t qualify as income, as they are nothing more than a repayment for an expense incurred.
Income and Revenue
While most people use income and revenue interchangeably, most accountants view them differently. Income is generally viewed as profit derived after calculating revenue from all sources and subtracting expenses. Revenue, on the other hand, applies to all sources of cash influx into a company, whether directly related to a company’s primary activities, secondary activities or reimbursement of expenses incurred.
Revenue and Reimbursement
While a reimbursement might be considered revenue, it won’t be considered income, as a reimbursement is simply payment for an expense that's already happened. In the course of doing business, sometimes a vendor pays fees on behalf of the client he represents. The client will reimburse these fees directly, so there is no real income earned when the revenue equals the expense. These are reimbursements.
Some companies charge their clients an administrative fee on top of reimbursable expenses, especially if the client decides to take a long time to pay the reimbursable expense. A construction management firm, for instance, might pay building expense fees of $1,000 but invoice the client $1,150, which includes an administrative fee of 15 percent. The fee helps offset the cost the vendor experiences by using his own money to pay for the client’s permit costs. Because the vendor has paid these fees for the client, he doesn’t have this money available for other things.
The IRS does not consider reimbursable expenses as taxable income, when you adequately account for these expenses to your client and receive reimbursement. To avoid including expense reimbursements in 1099 income, many companies set up separate vendor accounts in the accounts payable software module for the same vendor. One account is for reporting 1099 payments, while the other account only includes reimbursable, but not taxable, expenses.