Expense reimbursement laws by state (2026)

State expense reimbursement laws require employers to pay employees back for work-related costs, with obligations that depend on where employees work—not where the company is headquartered. While federal law sets a narrow baseline, many states impose their own reimbursement requirements, often with different rules around what counts as a necessary business expense and how quickly employees must be paid back.

Those differences matter even more for remote teams, where costs like internet access, cell phone use, and home office equipment are part of doing the job. Understanding which state laws apply and how they interact with federal standards is essential to staying compliant and avoiding unnecessary risk.

What are expense reimbursement laws?

Expense reimbursement laws require employers to pay employees back for work-related costs they incur while performing their jobs. At their core, these laws are designed to prevent companies from shifting operating expenses onto employees in a way that effectively reduces take-home pay.

To apply these laws correctly, employers need to understand a few foundational concepts that show up repeatedly in state statutes and enforcement actions:

Federal expense reimbursement requirements: The baseline

Federal law does not require employers to reimburse employees for all business expenses. Instead, reimbursement obligations arise indirectly through the Fair Labor Standards Act (FLSA), which is designed to ensure that work-related costs do not reduce an employee's earnings below the federal minimum wage.

Fair Labor Standards Act (FLSA)

Under the Fair Labor Standards Act (FLSA), employers must reimburse expenses when those costs would cause an employee's effective hourly pay to fall below the federal minimum wage of $7.25 per hour. For example, if an employee earns $9.00 per hour but regularly incurs $3.00 per hour in required work expenses, their effective wage drops to $6.00 per hour. Because this falls below the federal minimum, the employer must reimburse the difference.

This protection is narrow. Employees earning well above the minimum wage may have no federal reimbursement rights at all, even if they incur significant job-related costs. That limitation is the primary reason many states have adopted broader reimbursement laws.

IRS accountable plan requirements

To keep reimbursements tax-free for employees and deductible for the business, an employer's reimbursement program must qualify as an IRS accountable plan. An accountable plan generally meets three conditions:

1. Expenses have a clear business connection and are incurred while the employee is performing job duties
2. Employees substantiate expenses with appropriate documentation, such as receipts or invoices, within a reasonable time frame, commonly around 60 days
3. Any reimbursement that exceeds the substantiated amount is returned to the employer within a reasonable period, often around 120 days

If a reimbursement program does not meet these requirements, it is treated as a non-accountable plan. In that case, reimbursements are considered taxable wages and are subject to income and payroll taxes.

States with comprehensive expense reimbursement laws

Several states have enacted laws that go beyond federal minimum wage protections and require employers to reimburse employees for necessary business expenses, regardless of pay level. These laws generally apply to all employees working in the state, including remote workers:

California: The strictest standard

California Labor Code Section 2802 requires employers to indemnify employees for all necessary expenditures or losses incurred as a direct result of performing their job duties. Courts interpret "necessary" broadly, making California the most demanding state for reimbursement compliance.

The law covers required work costs such as tools, equipment, and a reasonable portion of remote work expenses like internet service and cell phone use. In Cochran v. Schwan's Home Service, the court held that employers must reimburse a percentage of an employee's personal cell phone bill when the phone is used for work, even if the employee has an unlimited plan and does not incur extra charges.

Reimbursement must be made promptly, which is commonly interpreted as within 30 days. Failure to comply can expose employers to significant penalties, including waiting time penalties and responsibility for the employee's attorney's fees.

Illinois: Broad coverage with procedural requirements

Illinois law requires employers to reimburse all necessary expenditures or losses incurred by employees within the scope of their employment. Expenses must be authorized by the employer or reasonably related to the employee's job duties.

Employees generally have 30 days to submit reimbursement requests with supporting documentation, unless the employer's written policy allows more time. For remote employees, necessary expenses are reimbursable when remote work is required rather than optional.

Montana

Montana Code Annotated § 39-2-701 requires employers to reimburse employees for all necessary expenses incurred in the course of their work. The statute is less detailed than California's law, but the practical takeaway is similar: if an expense is required to do the job, you should plan to reimburse it.

Washington DC

Washington DC requires employers to cover the cost of purchasing and maintaining tools required for the job under DC Municipal Regulation tit. 7, § 910.1. While the rule predates remote work, DC regulators have applied the "tools of the trade" principle to home office equipment, internet, and personal device use when those items are required for an employee's role.

For remote workers based in the District, that means a reasonable portion of internet, cell phone, and required equipment costs should be reimbursed when the work cannot be performed without them.

Other states with broad reimbursement requirements

North Dakota and South Dakota also impose broad reimbursement obligations, though the statutory language varies slightly by state.

States with conditional or limited reimbursement requirements

Some states require expense reimbursement only under specific conditions, such as when expenses are authorized in advance, when they reduce wages below the legal minimum, or when the employer has committed to reimbursement in a policy or agreement. In these jurisdictions, reimbursement obligations are narrower than in states with broad "necessary expense" statutes.

New York

New York does not generally require employers to reimburse business expenses unless reimbursement is promised in a written policy, employment agreement, or offer letter. When an employer makes that promise, it becomes an enforceable contractual obligation, and failure to reimburse can result in penalties under state wage payment laws. New York Labor Law Section 198-C also prohibits employers from requiring employees to bear costs that are properly the employer's responsibility, and New York City has additional worker protections that can affect reimbursement practices.

Massachusetts

Massachusetts requires reimbursement only when unreimbursed expenses would cause an employee's pay to fall below the state minimum wage. As a result, higher-wage employees may have no statutory reimbursement rights unless reimbursement is required by company policy.

Iowa

Iowa requires employers to reimburse expenses they have authorized. If an employer denies a reimbursement request, it must provide written notice explaining the reason for the denial. Iowa law also imposes a 30-day payment timeline once a valid claim is approved.

New Hampshire

New Hampshire requires employers to reimburse employees for necessary job-related expenses within 30 days after the employee submits proof of payment. The requirement applies regardless of wage level, but only to expenses that are required for the job.

Minnesota

Minnesota law requires reimbursement for certain expenses, such as consumable supplies and uniforms, when a employee's employment ends. The requirement is limited in scope and does not function as a broad reimbursement mandate during active employment.

Pennsylvania

In Pennsylvania, expense reimbursement is treated as a fringe benefit rather than a statutory requirement under the state's Wage Payment and Collection Law. If an employer agrees to reimburse expenses, payment must generally be made within 60 days of a valid claim.

Seattle

Washington state does not broadly require reimbursement, but the city of Seattle mandates reimbursement for all necessary business and remote work expenses incurred by employees working within city limits. Seattle has also enacted unique ordinances covering gig workers and transportation network company drivers, which go beyond what state law requires.

What qualifies as a 'necessary' business expense?

Whether an expense is considered "necessary" is the central question in most reimbursement disputes. While definitions vary by state, a necessary expense is generally one an employee must incur to perform their job duties, rather than a cost driven by personal preference or convenience.

In states with broad reimbursement laws, the focus is less on whether an expense is common and more on whether the work could reasonably be done without it.

Remote work and home office expenses

Remote work has made this analysis more complex, particularly in states that require reimbursement for all necessary job-related costs. When remote work is required, many home office expenses are treated as necessary because they enable the employee to perform their role.

Expenses that are commonly reimbursable in stricter states include:

• Internet service: A reasonable percentage of home internet used for work
• Cell phone plans: A reasonable percentage of a personal cell phone plan used for work
• Home office equipment: Desks, chairs, monitors, or keyboards when required by the employer
• Utilities: Prorated electricity or heating in some states
• Office supplies: Paper, pens, and printer ink needed to perform job duties

For example, if an employee pays $100 per month for a personal cell phone plan and reasonably uses 30% of that plan for work, an employer in a strict reimbursement state may be required to reimburse $30 per month.

Vehicle and mileage reimbursement

Vehicle-related expenses are another common area of confusion. In states with broad reimbursement laws, employers may be required to reimburse employees for mileage or other vehicle costs when driving is necessary to perform job duties, such as visiting clients or traveling between job sites. Commuting between home and a primary office generally doesn't qualify.

Many employers use the IRS standard mileage rate as a benchmark for reasonable reimbursement. Flat car allowances can create compliance risk if they don't reasonably reflect an employee's actual business expenses. If an allowance is too low to cover required driving costs, the employer may still be responsible for the shortfall, particularly in states that require reimbursement for all necessary expenditures.

Equipment and technology expenses

Laptops, software subscriptions, and peripherals like webcams or external monitors are increasingly central to remote work. In states with broad reimbursement laws, these are typically reimbursable when the employer requires them and doesn't provide an equivalent alternative.

The cleanest approach is to provide equipment directly. When an employer issues a company laptop, mouse, and headset, there's nothing for the employee to expense. When employees are asked to use their own devices or buy software to do their jobs, those costs generally need to be reimbursed, especially in California, Illinois, and DC.

Expenses that may or may not be reimbursable

Some costs fall into a gray area and depend heavily on state law, employer policy, and whether the expense is truly required to do the job. These may include:

• A portion of utility costs, such as electricity or heating
• Ergonomic or specialty equipment
• Coworking space memberships when no company office is available

Expenses that are generally not reimbursable

Even in states with strong reimbursement laws, some expenses are typically excluded because they aren't considered necessary business costs:

• Rent or mortgage payments
• Daily commuting costs to a primary office
• Professional clothing, unless it's a required uniform
• Personal cell phone plans when work use is minimal
• Meals during regular work hours that don't involve business travel
• Independent professional development the employee chose on their own

Employer-required vs. employee-chosen remote work

The distinction between required and voluntary remote work is critical. If an employee chooses to work from home for convenience while a fully equipped company office is available, home office expenses are less likely to be considered necessary.

By contrast, when a company operates as fully remote or has closed its physical offices, home office and connectivity expenses are more likely to qualify as necessary because employees have no alternative way to perform their work.

Cell phone reimbursement laws by state

Cell phone reimbursement has become one of the most searched compliance topics because remote and hybrid work have made personal devices a regular part of the workday. Employees take calls, respond to messages, and run work apps on phones they bought themselves, and several states require employers to cover a fair share of that cost.

Which states require cell phone reimbursement for employees

A handful of states explicitly address cell phone reimbursement, while others fold it into broader "necessary expense" rules:

• California: Employers must reimburse a reasonable percentage of an employee's personal cell phone bill when the phone is used for work, even if the employee has an unlimited plan (per Cochran v. Schwan's Home Service)
• Illinois: Reimbursement is required when the employer mandates the use of a personal device for work tasks
• Montana, Washington DC, North Dakota, and South Dakota: Cell phone use generally falls under each state's broad "necessary expense" language when the device is required for the job

Even in states without a specific cell phone law, you may still owe reimbursement under a general expense statute or local ordinance. When in doubt, default to reimbursing a reasonable portion of the bill.

Is cell phone reimbursement taxable?

Cell phone reimbursements paid under an IRS accountable plan are not taxable income to the employee. To qualify, the reimbursement must be tied to actual business use, supported by reasonable substantiation, and limited to amounts that reflect work usage.

Flat monthly stipends paid without any substantiation are treated as non-accountable plan payments. That means they're taxable wages subject to income and payroll tax withholding, and the employee can't deduct any unreimbursed business use on their personal return.

How to reimburse employees for expenses

The IRS recognizes two methods for reimbursing employee expenses, and the choice between them determines whether reimbursements are tax-free or treated as wages. Most employers should aim to run an accountable plan whenever possible.

Accountable reimbursement plans

An accountable plan meets three IRS requirements:

• Business connection: The expense must relate directly to the employee's job duties
• Substantiation: The employee submits receipts or other documentation within a reasonable time (commonly 60 days)
• Return of excess: Any advance or reimbursement beyond actual expenses is returned to the employer (commonly within 120 days)

Reimbursements paid under an accountable plan aren't included in the employee's taxable wages and aren't subject to income or payroll tax withholding. They're also fully deductible for the business.

Non-accountable reimbursement plans

Any reimbursement arrangement that doesn't meet all three accountable plan requirements is treated as a non-accountable plan. Flat stipends and allowances paid without expense substantiation usually fall into this category.

Payments under a non-accountable plan are taxable wages. You must include them in the employee's gross income, withhold payroll taxes, and report them on Form W-2. Employees also can't deduct the underlying business expenses on their personal returns, which makes this method less tax-efficient for everyone involved.

Expense reimbursement through payroll

Most employers process approved reimbursements through their payroll system, even when the payments aren't technically wages. This keeps payment timing consistent and creates a clean audit trail.

A few best practices to follow when running reimbursements through payroll:

• Code accountable plan reimbursements as a separate, non-taxable earning line so they don't get mixed in with gross wages
• List reimbursements separately on the pay stub so employees can clearly see what's pay and what's expense recovery
• Align reimbursement timing with state law (for example, within 30 days in California) rather than waiting for a quarterly cycle
• Confirm that your payroll and expense management systems share data, so approved expenses flow through without manual re-entry

How to create a mobile reimbursement policy

A clear, written reimbursement policy is one of the most effective ways to reduce compliance risk. It sets expectations for employees, creates consistency in how mobile and remote work expenses are handled, and provides documentation that can be critical if a reimbursement decision is later challenged.

Use the following 5 steps to build a policy that works across your distributed workforce.

1. Identify applicable state laws

Start by mapping where your employees actually work, not where your company is headquartered. The employee's work location governs which reimbursement laws apply, so an Ohio-based company with remote employees in California, Illinois, and DC is subject to all three states' requirements.

Build a simple inventory of employee work locations and the reimbursement rules tied to each one, then revisit it whenever someone moves or you hire in a new state.

2. Define reimbursable expense categories

Spell out exactly which expenses you'll reimburse and any per-category limits. Common categories for a mobile and remote workforce include:

• Cell phone and data plans
• Home internet service
• Home office equipment (desk, chair, monitor, keyboard)
• Mileage and business travel
• Software and subscriptions required for work

For each category, decide whether you'll reimburse actual costs, a fixed percentage, or a stipend, and document the rationale.

3. Establish submission and approval procedures

Define the workflow so employees know exactly how to submit expenses and what to expect in return. Cover who approves what, the deadline for submitting expenses, and how disputed or denied claims are resolved.

Be sure your payment timing aligns with the strictest applicable state law. California, for example, expects reimbursement within roughly 30 days of the expense, so a quarterly reimbursement cycle won't work for California employees.

4. Set documentation requirements

Specify exactly what documentation employees need to provide. The IRS substantiation rules expect itemized receipts, the business purpose of the expense, and the amount and date.

For shared expenses like home internet or a personal cell phone, document the allocation method up front, such as a reasonable percentage of monthly cost tied to work use. This protects both sides if the calculation is ever questioned in an audit or dispute.

5. Communicate the policy to employees

A policy only works if employees know about it. Distribute the written policy as part of onboarding, include it in your employee handbook, and post it somewhere employees can easily reference it.

Train managers on how the policy works so they can answer questions and approve expenses consistently. Re-circulate the policy whenever you update it or when a major state law changes.

Multi-state compliance: Strategy for distributed workforces

For employers with teams spread across multiple states, expense reimbursement compliance hinges on one key rule: the laws of the state where the employee works generally control, not the location of the company's headquarters. As workforces become more distributed, applying the right rules consistently becomes a growing operational challenge.

Most multi-state employers take one of two approaches to managing reimbursement obligations.

The 'highest standard' approach

Some companies adopt a single reimbursement policy based on the most stringent state laws, most often California's. This approach treats all employees as if they are subject to the strictest requirements, regardless of location.

Pros:

• Simplifies administration and reduces the risk of non-compliance
• Creates a consistent employee experience across states
• Limits the need to track changing state-specific rules

Cons:

• Increases reimbursement costs in states with minimal requirements
• May result in reimbursing expenses that are not legally required everywhere

This approach often works best for companies with a significant presence in strict states or those prioritizing simplicity over cost optimization.

State-specific policy addendums

Other employers maintain a core reimbursement policy and supplement it with state-specific addendums for jurisdictions with unique requirements. This allows companies to tailor reimbursement rules to local law.

Pros:

• Avoids over-reimbursement in states with limited or no statutory requirements
• Provides greater cost control for highly distributed teams

Cons:

• Requires more complex administration and employee location tracking
• Increases the risk of errors if policies are not updated promptly

This approach is most effective when supported by strong HR and finance systems capable of tracking employee location changes and applying the correct rules automatically.

Penalties for non-compliance with employee expense reimbursement law

Failing to comply with expense reimbursement laws can expose employers to costs that far exceed the value of the unpaid expenses themselves. Enforcement actions often combine back pay, statutory penalties, and legal fees, creating significant financial and operational risk.

Legal penalties and financial exposure

Penalties vary by jurisdiction, but the most active enforcement environments are California, Illinois, and federal FLSA claims:

• California: Employees can recover unpaid expenses plus interest and attorney's fees, and may also pursue penalties under the Private Attorneys General Act (PAGA), which assesses statutory amounts per employee and pay period. Waiting time penalties of up to 30 days of wages can apply when reimbursement is owed at termination.
• Illinois: Violations of the Wage Payment and Collection Act can result in damages, statutory penalties, and attorney's fees. Class actions are common when policies affect groups of employees.
• Federal (FLSA): When unreimbursed expenses push effective pay below minimum wage, employers can be liable for back pay plus an equal amount in liquidated damages, along with attorney's fees

These costs can escalate quickly, particularly in states that allow employees to recover penalties and attorney's fees in addition to back pay. Class and collective actions are especially risky because a single policy gap can multiply across an entire workforce.

Operational and reputational impact

Beyond direct financial exposure, reimbursement disputes can disrupt normal business operations. Common consequences include:

• Lower employee trust and morale
• Increased turnover and recruiting challenges
• Negative impact on employer brand and public perception
• Time diverted from core business activities to manage complaints, audits, or litigation

Taken together, these risks make expense reimbursement compliance a material issue for both finance and HR teams, not just a payroll concern.

Automate compliance with expense management technology

Manual reimbursement processes using spreadsheets and email are slow, error-prone, and create compliance risks. Automated expense management platforms are designed to solve these challenges. Ramp data shows that out-of-policy spend event rates declined by 62% among businesses that implemented automated expense management—real-time enforcement, not after-the-fact auditing, is what drives the change.

Key features to look for in an expense management platform include:

• Mobile receipt capture with OCR technology
• Automated policy enforcement and approval routing
• Configuration for state-specific rules and limits
• Real-time compliance alerts and monitoring
• Direct integration with accounting and payroll systems
• A complete audit trail for all expenses

Approved reimbursements sync automatically to your general ledger and payroll, eliminating manual data entry and ensuring tax-compliant reporting.

How Ramp simplifies expense compliance for remote teams

Managing expense reimbursements for remote employees across different states can quickly become a compliance nightmare. Each state has its own tax laws, reimbursement requirements, and documentation standards that finance teams must navigate. When you're dealing with employees across the U.S., keeping track of varying per diem rates, mileage reimbursement limits, and tax implications for each jurisdiction can overwhelm even the most organized finance department.

Ramp's expense management software simplifies multi-state expense compliance. The platform's intelligent categorization system recognizes expense types and can apply custom rules based on employee location and state regulations. For instance, when a remote employee in California submits a home office expense, Ramp can automatically flag which items qualify for reimbursement under California's specific remote work laws.

The real game-changer is Ramp's automated policy enforcement engine. Instead of manually reviewing each expense against multiple state requirements, you can configure custom approval workflows that automatically route expenses based on amount thresholds, expense categories, and employee locations. This means your New York employee's client dinner automatically follows different approval paths and documentation requirements than your Florida employee's travel expenses, all without manual intervention.

Ramp also maintains detailed audit trails for every transaction, capturing timestamps, approvals, and supporting documentation in a centralized system. This comprehensive recordkeeping proves invaluable during tax audits or compliance reviews. Rather than scrambling to piece together receipts and approval emails across multiple states, you have instant access to organized, compliant documentation that satisfies even the strictest state requirements.

Beyond multi-state compliance, Ramp delivers powerful features that save your company time and money. Real-time spending insights let you spot trends and anomalies before they become problems. Automated receipt matching eliminates hours of manual data entry. Expense data flows directly into your accounting software without duplicate work.

Try an interactive demo of Ramp to see how it handles multi-state reimbursement compliance for your team.