What Are the IRS Mileage Reimbursement Rules?
A mileage reimbursement program can be critical to your business’ success. Make sure you know the rules and best practices. With this in mind, we’ll walk you through mileage reimbursement best practices for employers and employees.
What are the IRS standard mileage rates?
Each year, the IRS sets the rate each mile driven for work is worth. Accordingly, the 2019 IRS standard mileage rates are:
- 58 cents per business mile,
- 20 cents per mile for medical or moving
- 14 cents for charitable reasons. This rate has remained steady for years
You can deduct these costs if you’re self-employed. W2 workers can no longer deduct this due to the new tax laws in effect.
What are the federal mileage reimbursement laws?
Specifically, here are some key takeaways:
- There’s no federal rule forcing private businesses to reimburse mileage
- There are labor laws that may force a mileage reimbursement
- States like California and Massachusetts do require reimbursements
- Using the standard mileage rate is an easy way to set a rate
- Here are the differences between a car allowance vs. reimbursement
- If employees receive a tax-free mileage reimbursement, they can’t claim a mileage deduction
- If it’s not an accountable plan, the mileage reimbursement can count as taxable wages
Is mileage reimbursement required by law?
There is no required mileage reimbursement rate companies have to pay. That’s right. The IRS hasn’t set any official mileage reimbursement rules.
Nonetheless, states like California and Massachusetts do have a mileage reimbursement rate rule. Also, many businesses peg this rate at the standard mileage rate – although they don’t have to.
Furthermore, W2 workers can no longer deduct non-reimbursed expenses like mileage.
What does the mileage reimbursement include?
Typically, mileage reimbursement covers the expense of operating a vehicle for business purposes. This bakes in the costs of expenses like gasoline, wear-and-tear and more. Companies have their policies about other vehicle-related expenses like tolls and parking.
Can I get a mileage reimbursement?
Your employer is not required to provide you a mileage reimbursement (except in certain states). But, your business may do it to attract talent. It never hurts to ask.
Is mileage reimbursement taxable income?
If you offer mileage reimbursement, that may impact an employee’s taxable income. The tax impact varies depending on if it’s what’s known as an accountable plan. An accountable plan is an expense allowance for reimbursement that follows these requirements:
- Has a business connection
- Requires substantiation
- The employee returns excess amounts within a reasonable time
If you have an accountable plan, your employees likely won’t have to pay income taxes on it.
IRS gas mileage reimbursement rate
There is no standard reimbursement rate, as companies can set their own rate. Some companies will even offer various ways to “pay for” employee mileage. Options can include providing work cars or offering a gas allowance. This can also include reimbursement for company mileage. As mentioned above, many companies peg the reimbursement rate to the rate set by the IRS.
Reimbursement expense reports: How to calculate mileage reimbursement
Most employees have to submit some mileage log if they want to get money for company mileage. Their expense report often includes a mileage log.
The specificity of the mileage log may vary by company, though. Some organizations may only need employees to submit mileage for each work trip. Other companies, especially publicly-traded ones, need stringent record keeping. For instance, include the reason for the journey, client names and even the make and model of the vehicle.
If you plan to take this reimbursement, you should have detailed mileage logs. If you don’t keep detailed records, your expense report may get rejected. Even worse, your employer could also take disciplinary actions if it suspects fraudulent claims.
Mileage reimbursement programs & policies best practices
A robust mileage reimbursement program relies on automatic mileage tracking. It should also include standardized, digital reporting. A good program helps you:
- Save Money. Up to 34.5 percent of employees admit to inflating their mileage for reimbursements, according to a Chrome River survey. This contributes to the $2.8 billion per year in overall expense fraud, Chrome River found.
- Boost Productivity. Employees spend up to four hours a month manually logging and reporting their miles, according to MileIQ data. That’s time and effort that could be used productively elsewhere.
- Be Compliant. A standardized program ensures you’re complying with all applicable laws. This minimizes your chances of lawsuits. It also gives you steady records that can stand up to scrutiny.
What to look for in mileage tracking for employees
The best businesses are leaning on technology for their mileage reimbursement programs. It’s a mistake to rely on a manual reporting process. A manual process:
- Wastes Time: Employees have to log every business drive manually. Payroll has to verify these miles, often relying on hand-written notes. That’s time they could spend on more valuable activities.
- Wastes Money: Employees will sometimes add mileage to their expenses reports. Your business can use this extra money in other productive ways.
- Lacks Compliance: You open your business up to lawsuits and audits without proper business records.
An ideal mileage reimbursement solution includes automatic mileage tracking and standardized, digital reporting. This will help save you time, money and promote compliance. Moreover, it needs to be easy to put in place and use. Then your employees will want to use it.
The Growth Center does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.