What expense category is Interviewing Costs and Candidate Travel?

Finding the right talent is crucial for business growth, and the recruitment process often entails costs associated with interviewing job candidates. When you bring a candidate in for an interview, you may reimburse them for their travel expenses, such as airfare, lodging, and meals.

For accountants and business owners, it's important to know that these reimbursements are deductible business expenses. However, they are treated differently from payments made to employees. This guide will clarify how the IRS categorizes these costs, the rules you must follow, and provide guidance on how to track them efficiently.

Interviewing Costs and Candidate Travel Expense Category

The costs you incur to interview job candidates are an ordinary and necessary business expense. IRS Publication 535 specifically addresses Interview expense allowances, stating that you can deduct reimbursements you make to job candidates for transportation and other expenses related to interviews for possible employment.

These costs are generally categorized under Other Expenses on a business tax return. On a company's books, they may be tracked in a specific account, such as Recruitment Expenses or Candidate Travel.

Important Considerations When Classifying Interviewing Costs

The key to handling these expenses correctly is to understand their unique status as payments to non-employees.

Reimbursements Are Not Wages

According to Publication 535, reimbursements for interview-related expenses are not considered wages. This means you do not need to report these payments on a Form W-2, and they are not subject to employment taxes (social security, Medicare, etc.). This is a critical distinction from how you would handle expense reimbursements for an actual employee under a nonaccountable plan.

The 50% Limit on Meals

While most travel costs for a candidate are fully deductible, the IRS applies a special rule to meals. Publication 535 states that expenses for food and beverages provided to a job candidate are subject to the 50% limit. This means you can only deduct 50% of the cost of any meals you reimburse as part of the interview process.

What Expenses Can Be Reimbursed?

The principles for what constitutes a deductible travel expense, as outlined in IRS Publication 463, can be applied to candidate travel. Deductible costs include:

• Transportation: The cost of travel by airplane, train, bus, or car between the candidate's home and your business location.
• Lodging: The cost of a hotel or other lodging if the candidate needs to stay overnight.
• Local Transportation: Fares for taxis or rideshares between the airport, hotel, and your office.

Tax Implications and Recordkeeping

To deduct these expenses, you must report them correctly and maintain the required documentation.

How to Report the Deduction

For a sole proprietor filing a Schedule C (Form 1040), interviewing costs and candidate travel reimbursements are deducted under Part II, Line 27a, Other expenses. You should list them with a clear description, such as Candidate Travel or Interview Expenses. Remember to apply the 50% limit to any meal costs before including them in the total.

What Records to Keep

You must keep records to substantiate all payments made to candidates. Your supporting documents should include:

• Receipts submitted by the candidate for airfare, lodging, local transportation, and meals.
• Proof of payment showing the reimbursement you made to the candidate (e.g., canceled check or bank transfer record).
• Documentation showing the business purpose of the expense, such as the candidate's name, the position for which they interviewed, and the date of the interview.

How Fyle Can Automate Tracking for Candidate Expenses

Fyle helps you manage and document candidate reimbursements efficiently, ensuring you have a complete and compliant record for every interview.

• Centralize Candidate Receipts: An internal recruiter or hiring manager can easily submit all of a candidate's receipts and invoices to Fyle.
• Track by Role or Department: Code all expenses related to an interview under a specific Project (e.g., Marketing Manager Hire) for clear cost tracking.
• Apply Meal Limits Automatically: Fyle’s policy engine can automatically apply the 50% limit to any expenses categorized as Candidate Meals.
• Automate Your Accounting: Sync fully documented and categorized recruitment expenses directly to the correct GL account in QuickBooks, Xero, NetSuite, or Sage Intacct.