Adding a tax rate while submitting an expense ensures accurate total cost calculations.
You can select predefined tax rates, which helps businesses differentiate between net and gross amounts and track taxes for reporting.
📌 Important: We're updating the Expenses input screen as part of a beta release. What you see in this article may not reflect what's available in your account.
Enabling the Tax for Expenses Feature
The tax rate field for expenses is enabled by default for all organizations, but filling it in is optional. When entering an expense, you can select a tax rate from a dropdown menu.
The tax rates available in the dropdown are directly tied to the subsidiary chosen for the budget. Check out the paragraph below for more information.
📌 The tax rate field is mandatory to send the expense to Xero and QuickBooks (non-US).
Good to Know: Setting Up Tax Rates
Tax rates are defined at the subsidiary level under Settings > Company Info > Tax Rates.
Admins can add and manage tax rates, including the rate name, subsidiary, and tax value (e.g., 0% for tax-exempt customers). These rates appear in the tax dropdown when submitting an expense.
📌 Note: Since tax rates are tied to specific subsidiaries, ensure the budget selected for the expense is linked to the correct subsidiary.
Expense Entry
The tax rate dropdown appears on the expense entry form and is editable once a service is selected.
📌 Important Considerations:
The tax rate dropdown is disabled until a service is selected since tax rates are linked to budgets and subsidiaries.
If you change the service to one linked to a different subsidiary, the tax rate field will show a warning when saving: "Not available for the currently selected subsidiary."
Expenses added before the Tax on Expenses feature was released will not have a tax value.
The tax rate field is optional unless integrated with Xero, where it becomes required when copying the expense to Xero.
For QuickBooks Online integrations:
US QuickBooks accounts do not support tax on expenses, so only the gross amount without tax is sent.
Non-US QBO accounts may support expense tax, and selecting a tax rate will be required before syncing.
Total Cost Calculation
The summary panel calculates totals automatically as you add line items. The Total cost toggle lets you choose whether line item total costs are treated as including or excluding tax — this affects how the remaining fields are calculated.
If set to excluding tax:
Total cost — the combined cost of all line items, excluding tax
Total tax — the total tax amount across all line items (expandable to see a breakdown by tax rate)
Amount with tax — Total cost + Total tax
Net expense cost — equal to Total cost
If set to including tax:
Total cost — the combined cost of all line items, tax included
Total tax — the tax portion across all line items (expandable to see a breakdown by tax rate)
Amount with tax — equal to Total cost
Net expense cost — Total cost − Total tax
Markup is an editable percentage applied on top of the net expense cost. If a default expense markup is configured in Settings, it will be applied automatically.
👉 Learn more about setting up default expense markup in Expenses: Admin Overview.
Total billable — the final amount billable to your client, calculated as Net expense cost + Markup.
📌 Tax is excluded from the Total billable calculation. When invoicing, you apply your own tax rate at that stage rather than passing through the expense tax.
Purchase Orders
When adding an expense through a Purchase Order (PO) form, the tax rate dropdown is also available.
The tax rates from Settings > Company Info > Tax Rates apply to PO expenses. The Totals section provides a breakdown of each expense’s tax amount.
📌 Important: Only expenses with a single line item can be added to a purchase order.
📌 Tip: The Purchase Order document template includes a "Tax" column and a subtotal calculation, along with the following columns: Description, Quantity, Price, Amount, Total Cost, Tax Rate, and Tax Total..
