Manage my business

How to calculate mileage expense reimbursement

If you drive a personal car for business reasons, your employer may provide a mileage expense reimbursement. Here’s a quick explainer on how you calculate your reimbursement.

How to calculate mileage expenses reimbursement

You’ll want to keep a mileage logbook of all your drives. Nowadays, companies prefer a digital mileage log like those generated by MileIQ. Make sure you’re including:

  • Dates of your drives
  • The distance of your trips
  • The business purpose of your drives
  • The potential value of these drives
  • Any additional vehicle expenses that are relevant

To determine what your miles are worth, multiply the miles driven by the mileage rate set by your employer. For example, let’s say you drove 224 miles last month and your employer reimburses at the Standard Mileage Rate for 2020 of 57.5 cents per business mile. Your mileage reimbursement would be $128.80 (224 X 57.5 cents = 122.08).

Does my company have to provide a mileage expense?

There is no federal law requiring a mileage reimbursement. But, many companies offer this to keep employees happy. States like California and Massachusetts require companies to provide some compensation for the business use of their vehicles. Review your state’s labor law website to verify the rules regarding mileage reimbursement.

Traditional company programs base their reimbursement rates on odometer readings. Employees record their starting point, destination and driving distance between the two points. Additional reimbursable expenses may include tolls, parking, maintenance and repair costs.

Another reason to offer mileage reimbursement

Do employees who travel for work earn minimum wage or a rate close to it? Then consider something covered in the Fair Labor Standards Act: If your employee’s work-related travel expenses cause their earnings to fall below the applicable minimum wage, you are responsible for reconciling the difference.

Although your state might not require mileage reimbursement, it’s good business to include it anyway since it’s standard practice. People who use their personal cars for work-related tasks typically appreciate getting compensated since gas, insurance and out-of-pocket expenses can add up quickly.

Are reimbursed mileage expenses taxable income?

If your business has an “accountable” plan, the employer doesn’t have to include these costs as part of taxable wages. The accountable plan must meet the following conditions:

  • Connected to the Business: The employee must have incurred the expenses in relation to their business services.
  • Substantiation: The employee must provide documentation of these expenses. For mileage reimbursements, this is often a mileage log.
  • Return Excess Amount: Employees must return any excess amounts in a reasonable amount of time.

Under an accountable plan, you can only compensate employees when they drive for specific work duties. This means daily travel to and from work are not included. However, reimbursing your employees can also help to pay fewer taxes since the money returned is a deductible business expense. Thereby, keeping your team happy and another reason to support employee retention.

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Business Insights and Ideas does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.