Taxes
Does Mileage Reimbursement Get Taxed?
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As mileage professionals, we constantly get asked what items fall under taxable income. And our answer to that question is often the same — it depends! When an employee drives a personal vehicle for work, a company will typically reimburse them for auto-related expenses. This is commonly known as mileage reimbursement. But what stumps a number of employees is whether mileage reimbursement counts as taxable income. That is why we’ve clarified any misunderstandings of the IRS mileage reimbursement rules below.
Is mileage reimbursement taxable income?
Employees who are given mileage reimbursement should know generally it is not taxable income. This remains the case as long as the amount does not exceed the IRS mileage rate for a given year. In 2022, for example, the IRS standard mileage rate is 58.5 cents per business mile. If your mileage reimbursement exceeds the IRS rate, the difference is considered taxable income. Comparably, if your employer uses the IRS rate but does not keep accurate records of the business use of your vehicle, then the reimbursement requires taxation. Bottom line: mileage reimbursement must be accountable to remain non-taxed.
How does mileage reimbursement work with taxes?
Mileage reimbursement is made possible with an IRS-approved accountable plan. Essentially, the accountable plan is a set of standards for handling your reimbursements or allowances for employees. In order for mileage reimbursement to be distributed, the accountable plan must satisfy the following requirements:
- There’s an established business connection
- Employees provide some form of substantiation for any fees or expenses
- Employees must return excess amounts in reasonable period of time
Granted you’re an employer who permits the use of personal vehicles for business reasons, mileage reimbursement is crucial. This refunded amount will cover yearly fuel, maintenance, and depreciation costs for your employees. Therefore, whether you have a small team or keep growing by the numbers, it’s important to properly track mileage for reimbursement purposes.
