Giving Teachers an Advance for Class Supplies

Is it better to give teachers and advance for class supplies? I’ve heard other co-ops give the supply money that each family paid to the teacher to have on hand for the semester to spend as they need to on suplies. This sounds much easier. Is it something we can do?

Advance Allowances Can Be Done

This idea is often suggested as an easier way to reimburse teachers for expenses such as classroom supplies!  As long as your teachers are either employees or volunteers, yes you can definitely use this method, but it may not be easier.  It may involve more record keeping work on the part of co-op leaders and teachers, and can result in the teacher having to report some or all of the advance allowance as income. You will still have to track the expenses and receipts will still need to be submitted.

Use an Accountable Plan

If your co-op is a 501c3 nonprofit and you’re providing an advance allowance, the IRS requires you to use an “accountable plan”. Here’s what the IRS requires as part of an accountable plan and what:

1. The allowance can’t be given more than 30 days before the expenses will be incurred. If your semester or term is longer than 30 days, you’d have to give advances in 30 day increments.
2. Any purchases made with the advance allowance must be related to your exempt purpose.
3. The teacher must submit receipts for the expenses within 60 days of incurring the expense. If your semester or term is longer than 60 days, the teacher can’t save the receipts until the end of the term. The receipt has to include:
   • What item was purchased
   • The amount paid for the item
   • The date purchased
4. If there is any money left over, the teacher must return it to the co-op within 120 days of when the last expense was incurred. That means your co-op could be tracking these advances for about four months!
5. If the teacher doesn’t return the excess funds within 120 days, they are required to claim that amount as income.
6. Until the receipts are submitted and excess funds are returned, your co-op will need to provide a statement (at least quarterly) to the teacher, asking to either return the excess or provide receipts!

As you can see, receipts still need to be submitted and expenses still have to be tracked. Plus you will have to add tracking the allowance, tracking the 120 day deadline, and a plan to issue statements to teachers to remind them to submit expenses or return the excess allowance.

Although this seems more complex, it may work better for some co-ops. If your co-op wants to advance funds for class expenses to your teachers, I suggest that you create policies and procedures to help make sure that everyone knows what to expect.

Make Sure Your Teachers and Board Understand…

An expense receipt not submitted to the co-op within 60 days after it is incurred would be considered a donation to the co-op and would not count against the allowance.

If the excess allowance is not returned to the organization by the 120 day deadline, then the teacher is required to report that amount as income on their federal tax return. If that amount is $600 or more, the co-op is required to issue a 1099 NEC to the teacher.

Resource: IRS Publication 463