Taxes

How to Calculate Mileage Reimbursement & IRS Rules | MileIQ

Marin Perez

Wondering how to calculate mileage reimbursement? Follow our guide to learn how to calculate mileage correctly and within IRS rules. ✓ Learn more!

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.

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

How do companies calculate mileage reimbursements?

Companies typically use a car allowance or per-mile reimbursement. An allowance is a set fee per month for employees. The reimbursement involves paying an agreed-upon fee per mile.  For mileage reimbursements, many businesses still rely on manual mileage logs. That means employees write down their mileage, input it in spreadsheet forms, then include that information during their monthly expense report. This process is ripe for mileage inflation and inefficiencies.  Modern companies are leaning toward solutions like MileIQ for Teams. This service app automatically tracks and logs employee mileage, while also providing seamless reporting.

Can I take a mileage deduction if I get a mileage reimbursement?

No. The new tax laws removed deductions for unreimbursed business expenses like mileage.

Are mileage reimbursements taxable?

While there is no standard mileage reimbursement program across the country, it is a common practice in many industries to compensate employees for traveling from home to work. 

The Internal Revenue Service states: "Under current law, a taxpayer generally will not be required to include in income any reimbursements or payments by an employer to an employee for qualifying expenses incurred in the course of employment, unless the reimbursements or payments are excludable from gross income under another provision of the Code, such as section 122. If the reimbursements or payments qualify as a working condition fringe benefit, they are excludable from income and the employer can deduct them as a business expense."

What's the best way to track business mileage?

Many people aren’t sure of the best way to track business mileage. Business owners often find it difficult to account for the miles driven for their business and car owners who use their car for work often may not be able to document their mileage accurately due to lack of time, leaving thousands of dollars on the table. 

The best way to track business mileage is to always keep a record of your driving in some way. However, this should be done in a way that is easy to maintain, so that it is not a hassle. It is also important to understand what type of mileage tracking you would like to use. In general terms, there are three types:

1) Computerized (via an app like MileIQ)
2) Manual (Excel or Google spreadsheet) 
3) Paper (print-out)

The best option is to document your mileage via an app like MileIQ. When you add the MileIQ appto your phone, you can automatically track your mileage wherever you go. The app runs seamlessly in the background, making it easy and efficient to use. Plus, with a one-swipe verification, you can easily classify your drives from the app dashboard. This app creates accurate reports you can rely on for all your mileage tracking needs.

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

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