Out-of-pocket costs definition
/What are Out-of-Pocket Costs in Accounting?
Out-of-pocket costs refers to expenses incurred by employees that require a cash payment. The employer typically reimburses employees for these costs through an expense reporting and check payment system. If employees are not reimbursed for these costs, they may be able to list them as deductible expenses on their individual tax returns, which reduces their income tax liability. An employer can reduce these costs by having employees make payments using company credit cards, so that the company pays for them directly.
What are Out-of-Pocket Costs in Health Care?
The out-of-pocket cost concept has a more specific application in regard to health care expenses. In this case, an individual incurs out-of-pocket costs when required to pay a portion of the cost of health care to the health care provider. This includes deductibles and co-payments. These costs are not covered by any insurance plans.
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Examples of Out-of-Pocket Costs
Examples of out-of-pocket costs are as follows:
The purchase of gasoline, parking, and tolls while engaged in company business
The cost of a business lunch with a client
The cost of a reward card given to an employee
Conversely, all non-cash expenses, such as depreciation and amortization, are not considered to be out-of-pocket costs. Further, major expenditures such as for fixed assets, or planned expenditures such as for invoices submitted by suppliers are not considered to be out-of-pocket costs.