IRS Mileage Reimbursement: Reimbursement Rules & Tips
We often talk about tracking mileage so independent contractors can take a tax deduction. Yet, a tax deduction isn’t the only reason to track mileage if you drive for work. Many employee are also eligible for a mileage reimbursement via expense reports. These workers should also track their miles.
Federal Mileage Reimbursement Laws
We’ll dive into the specifics below but some key takeaways are:
- There’s no federal rule for private businesses to reimburse use of a personal vehicle for work purposes
- If you don’t receive a mileage reimbursement, you may claim a deduction for the business mileage
- If your reimbursement doesn’t equal the standard mileage rate, you may claim a partial deduction
- You likely don’t have to pay income taxes on your reimbursement if it’s part of an accountable plan
- If you receive a tax-free mileage reimbursement, you can’t claim a mileage deduction
- If it’s not an accountable plan, your mileage reimbursement can count as taxable wages—You’ll be able to claim a deduction in this scenario.
Is An Employer Required to Pay Mileage Reimbursement
There’s no required mileage reimbursement rate companies have to pay. That’s right, the IRS hasn’t set any official mileage reimbursement rules.
Yet, some states do have a mileage reimbursement rate requirement. Also, many businesses decide to peg this rate at the standard mileage rate but they don’t have to.
If you don’t get this rate for your reimbursement, you may still be eligible for a deduction. This would be the partial mileage deduction.
Mileage Reimbursement Versus Deduction
Let’s clear up some of the terms before we dive into the importance of tracking your drives.
The mileage deduction is about the miles you can deduct on an itemized tax returns at the end of the year. Each year, the IRS sets the rate each mile driven for work is worth. The 2017 standard mileage rate set by the IRS is 53.5 cents per mile for business drives. You can see how someone who drives a lot for work can earn a pretty hefty deduction.
The mileage reimbursement allows you to add the miles they drive to an expense report. Companies reimburse these people for these miles. These employees can’t take a tax deduction on their miles because they’re already reimbursed. The IRS doesn’t allow people to “double-dip.”
But wait—there is an exception to this rule!
You can take a partial deduction if your company doesn’t use the standard mileage rate. You can claim the difference between your mileage reimbursement and the IRS rate.
Is Mileage Reimbursement Taxable Income?
If you use a personal vehicle for business purposes and get a mileage reimbursement, that may impact your 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 of reimbursement that follows these requirements:
- has a business connection
- requires substantiation
- excess amounts are returned in a reasonable time.
If your mileage allowance meets these conditions, you likely won’t have to pay income taxes on it. You can’t double-dip and take a mileage deduction for these expenses, though.
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.
Example of Partial Mileage Reimbursement
Nancy is a pizza delivery driver for Pepperoni Pete’s Pizza Pies. Nancy gets a reimbursement of 35.5 cents for every mile she drives delivering pizza. The difference between the reimbursement and the IRS rate is 18.5 cents per mile.
If Nancy drives 10,000 miles in 2016, she’ll receive a reimbursement of $3,550. She can also take a tax deduction of $1,850 on her taxes. She can only do this if she’s remembered to track her mileage.
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 milage 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.
Tracking Drives for Miles Reimbursement
Employees have many options for tracking mileage for their mileage reimbursement:
Not Doing It
Sadly, the most common method is not to do it. Employees often feel that the records needed are more effort than they’re worth. This hassle means many don’t include a mileage reimbursement in their expense reports. At 54 cents per mile in 2016, this is a huge mistake and can add up to thousands of dollars per year.
Calendar and Maps
Another common method is going back through their calendars and calculating the distance. While this method is better than doing nothing, it still poses a few problems.
Many employers are like the IRS: they need contemporaneous record keeping. Estimating your mileage may be in violation of an employer’s policies.
Just as important, going back and estimating is time-consuming and inefficient. It takes a lot of time to comb through calendar entries and lookup the mileage for every meeting. It’s no wonder many employees don’t think the time investment is worth it.
Pen and Paper
Many employees keep a notebook in their cars and note the mileage each time they drive for work. This method is time-consuming and easy to forget. This often leads to lackadaisical record keeping and missed miles. Employees are likely to record the longer drives they make. But they often won’t bother with drives of a few miles here or there. Yet, these small drives can add up to significant reimbursement over time.
Automated Mileage Tracking
A mileage tracking app like MileIQ is the easiest way to ensure you’re tracking your drives. This automatically tracks your miles and ensures you keep an accurate mileage log for a mileage reimbursement.
Additionally, you can easily print or download a report of all your business drives. These reports include mileage, vehicles, business reasons for drives, notes to include and more. This can help save many hours per week in record keeping. It also helps to ensure you’ll never have a reimbursement for company mileage denied for inadequate data.
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