Updated June 2020
A mileage reimbursement program can be critical to your business’ success. Make sure you know the rules and best practices. With this in mind, we’ll walk you through mileage reimbursement best practices for employers and employees.
Each year, the IRS sets the rate each mile driven for work is worth. Accordingly, the 2020 IRS standard mileage rates are:
You can deduct these costs if you’re self-employed. W2 workers can no longer deduct this due to the new tax laws in effect.
Specifically, here are some key takeaways from federal mileage reimbursement laws:
There is no required mileage reimbursement rate companies have to pay. That’s right. The IRS hasn’t set any official mileage reimbursement rules.
Nonetheless, states like California and Massachusetts do have a mileage reimbursement rate rule. Also, many businesses peg this rate at the standard mileage rate – although they don’t have to.
Furthermore, W2 workers can no longer deduct non-reimbursed expenses like mileage.
Typically, mileage reimbursement covers the expense of operating a vehicle for business purposes. This bakes in the costs of expenses like gasoline, wear-and-tear and more. Companies have their policies about other vehicle-related expenses like tolls and parking.
Your employer is not required to provide you a mileage reimbursement (except in certain states). But, your business may do it to attract talent. It never hurts to ask.
If you offer 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:
If you have an accountable plan, your employees likely won’t have to pay income taxes on it.
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. Options can include providing work cars or offering a gas allowance. This can also include reimbursement for company mileage. As mentioned above, many companies peg the reimbursement rate to the rate set by the IRS.
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. For instance, include the reason for the journey, client names and even the make and model of the vehicle.
If you plan to calculate mileage 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 also take disciplinary actions if it suspects fraudulent claims.
A robust mileage reimbursement program relies on automatic mileage tracking. It should also include standardized, digital reporting. A good program helps you:
An ideal mileage reimbursement solution includes automatic mileage tracking and standardized, digital reporting. This will help save you time, money and promote compliance. Moreover, it needs to be easy to put in place and use. Then your employees will want to use it.