Remote employee reimbursement laws by state

The massive shift to remote work over the last several years has created widespread confusion around employee expense reimbursement. Home office equipment, higher utility bills, and internet upgrades have left both workers and employers uncertain about reimbursement obligations.

Federal and state laws vary significantly on reimbursement requirements, which complicates compliance for businesses operating in multiple jurisdictions. Companies that fail to follow these regulations may face potential lawsuits, penalties, and damaged employee relationships.

In this post, we'll take a closer look at employee reimbursement rules by state, what counts as a necessary expense, and how to create a compliant reimbursement policy.

Employee reimbursement rules at the federal level

The Fair Labor Standards Act (FLSA) is a 1938 federal law that establishes minimum wage, overtime pay, and employment standards.

While the FLSA doesn't generally require employers to reimburse employee expenses, it mandates reimbursement when unreimbursed work-related expenses would drop an employee's earnings below the federal minimum wage of $7.25 per hour.

This narrow requirement applies to both on-site and remote workers, making it the only federal expense reimbursement mandate.

IRS guidelines for accountable vs. non-accountable plans

The IRS distinguishes between two reimbursement approaches: accountable and non-accountable. Accountable plans require employees to substantiate business expenses with receipts and return excess advances within reasonable timeframes. Reimbursements paid under an accountable plan aren’t considered taxable income.

Non-accountable plans don’t have any requirements around proper documentation, making all reimbursement payments taxable wages subject to payroll taxes. As a business, you ultimately choose whether to use an accountable or non-accountable plan. However, most businesses use accountable plans because they eliminate payroll tax obligations.

Common federal misconceptions

Many employers mistakenly believe all expense reimbursements are tax-free. But if you don’t meet IRS accountable plan requirements, reimbursements become taxable compensation. Another frequent error involves thinking verbal approval suffices. The IRS requires written policies and documented expense substantiation for tax-advantaged treatment.

Outside of federal requirements, individual states are free to decide whether reimbursements are required or provided at the employer’s discretion. As a result, 11 U.S. states and 2 cities currently have laws in place requiring employee reimbursement under certain circumstances.

Which states have employee expense reimbursement laws?

As of January 2025, 11 states require employee expense reimbursements by law:

1. California
2. Illinois
3. Iowa
4. Massachusetts
5. Minnesota
6. Montana
7. New Hampshire
8. New York
9. North Dakota
10. Pennsylvania
11. South Dakota

In addition, 2 cities have enacted laws requiring reimbursements:

1. Seattle, Washington
2. District of Columbia (Washington, D.C.)

If you allow employees to work remotely in these jurisdictions, it’s important to understand the specific state laws around reimbursements. Currently, only California and Illinois lawmakers have specified that their states’ employee reimbursement laws cover remote work expenses. However, many other states are vague on this point, creating quite a bit of gray area.

Expense reimbursement laws by state

Here's an overview of individual state employee reimbursement rules and their requirements.

As a general rule, these laws typically cover remote work expenses only if remote workers don’t have the option of working on-site. Employers usually aren’t required to reimburse expenses for voluntary work-from-home arrangements, though many still choose to do so.

Here's a quick reference of states and cities and their employee reimbursement rules:

California

Section 2802 of California’s labor code requires employers to reimburse any business-related expense incurred by an employee that’s necessary to their job duty or function. This not only includes expenses incurred at the employer's direction, but may also encompass necessary costs such as electronics, tools of the trade, and even a portion of home utility bills, such as electricity.

Illinois

If an employee incurs an expense that is directly related to the scope of their employment and to the services they perform for their employer, the Illinois Wage Payment and Collection Act requires reimbursement.

Iowa

Under Iowa Code 91A.3(6), employers are required to reimburse any expense that is authorized by the employer. The reimbursement must be made either in advance of the employee incurring the expense or within 30 days of the employee submitting a reimbursement request.

Massachusetts

In Massachusetts, employers are required to reimburse any expenses that would drop the employee’s wage below the state’s minimum wage, which is $15 per hour as of 2025.

Minnesota

Minnesota Statute 177.24 requires employers to reimburse employees upon termination for certain necessary expenditures related to performing their job. This includes expenses related to consumable supplies (paper, ink, etc.), work uniforms, travel expenses unrelated to regular commuting, and rented or purchased equipment.

Exceptions here include motor vehicles, tools of a trade (e.g., plumber’s tools), and other equipment that can be used outside the job. Notably, employers can require employees to return any items for which they’ve been reimbursed.

Montana

Under Montana Administrative Rule 24.29.720, employees are entitled to reimbursement for all necessary expenses incurred either at the direction of their employer or over the regular course of performing their job. The broad language of the code may extend reimbursement requirements to cover a portion of expenses such as cell phone bills, mobile data plans, internet access, and even electricity and other utility bills.

New Hampshire

In New Hampshire, if an employer requires an employee to pay for an expense related to their job, they must reimburse the employee within 30 days of the employee submitting a reimbursement request. Alternatively, employers can cover the expense with a cash advance.

New York

New York Labor Law Section 198-C requires employee reimbursement only when there’s an explicit agreement between the employer and employee that specifies expense reimbursement. An example of such an agreement might include an employment contract. Failure to provide reimbursements in this manner is considered a misdemeanor in the state.

North Dakota

North Dakota requires employers to reimburse any expense an employee incurs in direct “consequence of the discharge” of their duties under the state’s Century Code Section 34-02-01. This requirement doesn’t extend to employee expenses for items or equipment they can use outside their job.

Pennsylvania

Pennsylvania doesn’t explicitly require employers to reimburse employee expenses. But under the state’s Wage Payment and Collection Law, if an employer agrees to reimburse expenses, the reimbursement must be made within 60 days of the employee’s reimbursement request. Employees can also claim unreimbursed expenses on their state income tax return.

South Dakota

Under Section 60-2-1 of South Dakota’s Labor and Employment laws, employees are entitled to reimbursement of any necessary expense incurred as a result of completing their job duties. Moreover, if an employee breaks the law under the direction of their employer, expenses related to the act are also reimbursable as long as the employee didn’t know their actions were illegal.

Seattle, WA

The State of Washington does not require employers to reimburse employee expenses except in cases that would break the rules outlined in the FLSA. With that said, unreimbursed expenses are tax-deductible in certain circumstances and can be used to reduce the employee’s taxable income for the year.

In Seattle specifically, the Seattle Wage Theft Ordinance requires employees to be reimbursed for all necessary expenses they incur on the job.

Washington, D.C.

Under Rule 909.1 of the District of Columbia Municipal Regulations, employers must reimburse employees for travel expenses incurred by the employee in performing the employer's business. Additionally, under Rule 910.1, employers must reimburse employee expenses related to the purchase and maintenance of any tool an employee requires to perform their job function.

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What counts as a necessary expense?

Exactly which expenses are reimbursable varies depending on the individual state law, but there are some general truths across the board.

Mandatory vs. remote work

Expense reimbursements related to remote work are typically only required if the employee doesn’t have the option to work on-site. This includes instances where:

• The state or federal government mandates remote or hybrid work
• The company mandates remote or hybrid work
• The employee was hired as a remote worker in a state where the company doesn’t have a physical presence

When an employee chooses to work remotely but isn’t required to, expense reimbursements are typically left to the employer’s discretion.

Necessary expenses

Most state laws only require expense reimbursement for “necessary” or "reasonable" expenses. This means expenses required for an employee to be able to do their job, but this is usually subject to the employer’s interpretation.

Some common examples of remote expenses that may be reimbursable under these guidelines include:

• Office supplies: Notebooks, pens, pencils, and printer paper
• Electronics: Laptops, desktop computers, monitors, speakers, headsets, microphones, mice, keyboards, or printers
• Office equipment: Desks, standing desks, and chairs
• Connectivity: Internet, cell phone, data, or landline plans
• Tools of the trade: Plumber’s tools or electrician’s tools

In some states with vague or employee-friendly reimbursement laws, employers may even be required to reimburse a portion of their employees’ home utility bills each month, including electricity and gas.

Special considerations: Cell phone and internet reimbursement

Only two states—California and Illinois—require cell phone and internet reimbursement. This is because those two states require reimbursement for all business-related expenses, whereas other states may leave it up to the employer which expenses are reimbursable and which aren't.

To reimburse an employee for cell phone or internet costs, a company will typically require the employee to calculate how much of the total cost can be attributed to business use. For example, an employee may need to document how much mobile data was used in the discharge of company business.

How to create a compliant remote employee reimbursement policy

Remote work expenses can add up quickly for employees. A clear expense reimbursement policy protects your business while supporting your team's financial well-being and productivity.

A written policy also serves as the foundation for both IRS compliance and employee satisfaction. Without documented guidelines, businesses risk tax penalties, inconsistent expense handling, and frustrated employees who may feel uncertain about which expenses qualify for reimbursement.

Clear policies eliminate guesswork, streamline the approval process, and ensure fair treatment across your entire workforce.

Steps to drafting a policy

Creating an effective reimbursement policy requires thorough expense categorization and clear procedural guidelines. Following these structured steps will help you build a comprehensive policy that meets both business needs and compliance requirements.

1. Identify necessary expenses for your business: Start by listing the specific costs that remote employees incur while performing their jobs. Common expense categories include internet service, mobile phone plans, home office equipment, and office supplies. 
2. Decide on reimbursement methods: You have four primary options: actual expense reimbursement, monthly stipends, accountable plans, or nonaccountable plans. Actual expense reimbursement requires employees to submit receipts for each purchase. Monthly stipends provide fixed amounts regardless of actual spending. 
3. Outline documentation and approval processes: Specify what documentation employees must provide, such as receipts, invoices, or expense reports. Establish clear approval workflows that designate who reviews and authorizes different expense types.
4. Set timelines for submission and payment: Define deadlines for expense submission, typically within 30–60 days of the expense date, and establish processing timeframes for reimbursement payments. Clear timelines help employees plan their finances and ensure timely processing by your accounting team.

These foundational steps create a framework that supports both operational efficiency and regulatory compliance. A well-structured policy reduces administrative burden while providing employees with the clarity they need to manage work-related expenses confidently.

Accountable vs. non-accountable plans

Selecting the right reimbursement structure affects both tax implications and administrative requirements. Each approach offers distinct advantages depending on your business size, complexity, and administrative capacity.

• Accountable plans: Require employees to provide detailed business justification for expenses and return any unused funds. Under IRS rules, reimbursements through accountable plans are not considered taxable income to employees. This approach offers tax advantages but requires more administrative oversight and documentation.
• Non-accountable plans: Provide employees with allowances or stipends without requiring detailed expense tracking. These payments are considered taxable income and must be reported on W-2 forms. While simpler to administer, non-accountable plans increase the employee's tax burden and your payroll tax obligations.

Accountable plans typically work best for remote work scenarios because they provide tax benefits while maintaining proper expense controls. The additional documentation requirements are often worthwhile, given the potential tax savings for both employer and employee.

Non-accountable plans may be a good choice for businesses with only small, predictable employee expenses. In this case, administrative simplicity may outweigh tax considerations.

Best practices and next steps

There’s some good news for employers in all this: As long as employee reimbursements are properly tracked and documented, you can likely take a business tax deduction for any expense reimbursements that are regular and necessary for your industry.

Here are some tips you can use to make sure you’re getting remote reimbursements right:

• Understand state-specific reimbursement laws: When hiring remote workers, make sure you understand the reimbursement laws for their home state so you know whether you need to reimburse their expenses
• Implement a thorough expense reimbursement policy: Create guidelines that outline spending limits and establish which expenses an employee can make at their own discretion and which ones need prior approval
• Clearly communicate your reimbursement policy: Share your policy and approvals process with all relevant staff, and consider automating your expense approval process as much as possible
• Consider alternatives to reimbursements: Explore options such as corporate credit cards with preloaded remote work stipends, which could help simplify the issue

Should you have any questions or doubts about reimbursable expenses or tax write-offs, consider consulting an accountant or tax professional to ensure you remain in compliance and avoid any penalties.

Simplify expense management with Ramp

Ramp makes it easy to manage all your expenses. Our expense management software was designed to help you streamline the entire expense reporting process, whether employees are on-site or remote, and whether reimbursements are discretionary or required by law.

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Check out our interactive demo environment and see for yourself why companies that choose Ramp save an average of 5% a year across all spending.