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Mileage Reimbursement & IRS Rules | MileIQ
If you're an employee who uses your personal car for business reasons, you may be eligible for mileage reimbursement. Sometimes, though, it's not clear how to calculate mileage reimbursement or how the specific IRS rules for reimbursement work.
Typical questions about mileage reimbursement include:
- What is mileage reimbursement?
- What is the rate for mileage reimbursement in 2021 and 2022?
- How does mileage reimbursement work?
- How can you qualify for reimbursement?
- What should a mileage log include?
This article will answer those questions as well as others as we dive into what's required for an employee mileage reimbursement, as well as how to calculate mileage reimbursement. what you deserve.
What is mileage reimbursement?
Mileage reimbursement is a tax deduction offered to employees who use their own vehicles for work-related travel. If you are reimbursed for mileage, you can reduce the amount of income taxes you owe on your salary.
Reimbursement for company mileage is an often misunderstood tax deduction. Whether you are a business owner or just a regular employee, you can deduct your expenses by using your own vehicle for work-related travel.
Types of Mileage Reimbursement: Fixed vs. Variable Rates
How much to reimburse for mileage varies depending on whether your car is driven at a fixed or variable rate.
A fixed rate allows a motorist to calculate their mileage based on the miles they drive. A "variable rate" calculates mileage based on factors such as fuel efficiency, driving time, and vehicle location, but it has a lower reimbursement amount than a fixed rate allowance.
A fixed rate is more common, with the Internal Revenue Service allowing a taxpayer to deduct either actual vehicle expense or a specified rate based on the IRS standard mileage rate.
How does mileage reimbursement work?
As far as the IRS is concerned, you can deduct business mileage on your tax returns, but it’s only allowed if you qualify. And this qualification is based on how much business travel you have in a year.
How do you qualify for mileage reimbursement?
Qualification requirements include:
1) You must be able to produce documentation of the date and places that you made those trips to prove that they were related to your work.
2) You can only deduct the miles you’ve traveled for business-related purposes. That means you can’t take reimbursements for driving your kids to school and soccer practice.
3) Be sure to keep a separate log of your business and non-business trips so that you can distinguish between them on your tax returns.
4) You can deduct the miles you have traveled only when you are not using a car owned by your company.
6) You can also deduct expenses for parking fees and tolls related to your business travel.
7) Expenses for job-related travel are only deductible if they are not reimbursed by your employer.
8) Every year, you must keep records of your business travels. You must include the date, place, type of vehicle, and expense for each business trip you take.
What is the standard IRS mileage reimbursement rate?
There's no required state or federal reimbursement rate but many companies reimburse at the standard mileage rate. The business mileage rate for 2021 is set at 56 cents per business mile.
On January 1, 2022, the standard mileage rates for using a car (also vans, pickups or panel trucks) changed to 58.5 cents per mile driven for business use.
How can I calculate mileage reimbursement?
Calculating mileage reimbursement is relatively simple—you don’t even need to use a mileage calculator for reimbursement!
To find your reimbursement, multiply the number of business miles driven by the IRS reimbursement rate. So if you drove 1,000 miles and got reimbursed .585 cents per mile, your reimbursement would be $585 (1,000 miles X $0.585 = $585).
What does the IRS require for business mileage reimbursement?
There are no IRS mileage reimbursement rules requiring employers to reimburse employees for using their personal cars for work. This means that an employer could offer nothing in the form of reimbursement and it's completely legal. Of course, many businesses offer reimbursement of costs because it's a good way to attract and retain talent. Common reimbursable expenses could be a gas allowance, a company vehicle, or more.
What should a mileage log include?
The answer to this question will vary depending on your situation and the reason for travel. That said, there are certain things that you will always want to ensure are included.
- The miles that were driven; this includes the distance driven, as well as the beginning and ending odometer reading. The more information that is included, the better.
- The dates and times that you were on the road.
- The place you drove for business.
- The business reason for your trips.
Employers tend to like for these details to be included in a monthly expense report to calculate mileage reimbursement. This means it's better if your mileage log is created in a timely manner. Without detailed mileage log reports, your mileage reimbursement may lead to internal questions or even be denied. Even more, some employers may even accuse you of fraud if you don't have supporting documentation for your mileage reimbursement.