Updated: August 7, 2018
A mileage reimbursement program can be critical to your business’ success. Make sure you know the rules and best practices. This article walks 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. The 2018 IRS standard mileage rates are:
- 54.5 cents per business mile, up 1 cent from 2017
- 18 cents per mile for medical or moving, up 1 cent from 2017
- 14 cents for charitable reasons. This rate has remained steady for years.
You can deduct these costs if you’re self-employed. W2 workers used to be able to deduct unreimbursed business expenses like mileage but can no longer deduct this due to the new tax laws in effect.
What Are The Federal Mileage Reimbursement Laws?
We’ll dive into the specifics below. 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.
Yet, states like California and Massachusetts do have a mileage reimbursement rate rule. Also, many businesses peg this rate at the standard mileage rate. But, they don’t have to.
With the new tax law in 2018, W2 employees will no longer be able to deduct non-reimbursed expenses like mileage. You can still do this for your 2017 tax returns but won’t be able to do it moving forward.
What Is Included in Mileage Reimbursement?
Typically, a mileage reimbursement covers the costs of operating a vehicle for business purposes. This bakes in the costs of expenses like gasoline, wear-and-tear and more. Companies have their own policies regarding other vehicle-related expenses like tolls and parking.
Can I Get a Mileage Reimbursement?
Except for in certain states, your employer is not required to provide you a mileage reimbursement. But, your business may want to, in order to attract and retain talent. It never hurts to ask.
Is Mileage Reimbursement Taxable Income?
If you offer a 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. This can include providing work cars or offering a gas allowance. This can also include a 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 sort of mileage log if they want to get money for company mileage. This is often included in their expense report.
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. This may include the reason for the trip, 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 even take disciplinary actions if it suspects fraudulent claims.
Mileage Reimbursement Programs & Policies Best Practices
A robust mileage reimbursement program relies on automatic mileage tracking and includes standardized, digital reporting. This helps you:
- Save Money: Up to 34.5 percent of employees admit to inflating their mileage for reimbursements, according to a Chrome River. This contributes to the $2.8 billion per year in overall expense fraud, Chrome River found.
- Boost Productivity: Employees spend up to 4 hours a month manually logging and reporting their miles, according to MileIQ data. That’s time and effort that could
- Be Compliant: A standardized mileage reimbursement 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 manually log every business drive. 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. It needs to be easy to implement and use. Your employees will actually want to use it.
MileIQ for Teams puts it all together. It provides a simple mileage tracking tool that employees love, with the standardization and security businesses require. It saves time, money and promotes compliance.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.