Taxes

What Are The IRS Mileage Reimbursement Rules?

Linzi Martin

These days, more employees are spending time outside of the office and in their car. Whether it's to meet with clients, close a deal, take a business trip, or run a work-related errand, it’s not uncommon for workers to use their personal vehicle during business hours. In fact, a number of professions require it. For most taxpayers, the burning question at hand is — Are you reimbursed for those miles?

Unlike self-employed workers, who can claim car expenses on a Schedule C form, W-2 employees are no longer eligible to deduct unreimbursed expenses like mileage. Because a mileage deduction provides the greatest savings on your tax return, many employers initiate a mileage reimbursement program instead. Companies can opt to use the IRS standard mileage rate for the year or set their own rate for employee drives.

Bottom line: If you use your vehicle for business purposes, it’s a good time to ask your employer about mileage reimbursement (if they don’t already do so). This tax break not only helps employees earn back a portion of paid expenses, there are several other company benefits as well. Below we’ll answer the most frequently asked questions regarding the IRS rules on mileage reimbursement. We hope this information helps you better understand mileage reimbursement programs in 2022.

What is mileage reimbursement?

A mileage reimbursement covers the expense of operating a vehicle for business purposes. This amount takes into consideration the costs of gas, maintenance, wear-and-tear and other eligible car expenses. Different from a car allowance, which offers a set amount over a period of time, mileage reimbursement is typically computed at the end of a tax year. In most cases, you’ll use the standard mileage rate to calculate your reimbursement. For 2022, the standard mileage rate is 58.5 cents per business mile.

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

When should an employee be reimbursed for mileage?

Employees are eligible for mileage reimbursement when they use their personal vehicle for business miles. For example, a sales professional that clocks several hours a day on the road to meet with clients could be reimbursed or given a car allowance. The option for reimbursement will depend on your employer. If you are unsure whether or not your company reimburses mileage, it never hurts to ask! It’s a good thing to bring up when you’re interviewing for a job as well.

What are the rules for mileage reimbursement?

Mileage reimbursement rules are generally according to your employer’s terms and conditions, not the IRS. In order for a mileage reimbursement to be “tax-free”, your employer must have an accountable plan and keep sufficient records of employee mileage. In layman's terms, an accountable plan ensures all claimed expenses have the following components:

  • Business connection
  • Are adequately accounted for
  • Any excess reimbursement is returned  

With an accountable plan, companies don’t have to report mileage expenses as pay. Which means, it won’t affect your taxable income. Good news! With that said, most employees have to submit a mileage log if they want to get reimbursed for business miles. The same rules apply for employers when they go to file their taxes.

You can keep track of your mileage using a few different methods. However, signing up for a mileage tracking app is surely the way to go. You can automatically track your business drives each day without disrupting your work schedule.  

Is mileage reimbursement a federal law?

It might come as a surprise to some employees, but mileage reimbursement is not required by federal law. In fact, as of 2022, the IRS has not set any official rules for mileage reimbursement programs. There is no standard reimbursement rate either, as companies have the freedom and flexibility to set their own or use the IRS standard mileage rate. Having said that, states like California and Massachuesetts do have requirements on mileage reimbursement. Therefore, it’s a good idea to check with state legislation to be sure.  

Before you get too discouraged, you’ll be happy to know that a majority of employers create mileage reimbursement programs. Apart from saving money over time, it attracts talent and keeps employee morale high. Plus, nowadays mileage tracking for employees requires very little bookkeeping. With MileIQ for Teams, employers can keep track of employee drives automatically, save reports, as well as add and replace drivers when necessary.

In other words, it’s rather a mistake to rely on a manual reporting process with the technology that exists today. Besides the chance of human error, large companies often find it difficult to manage employee expenses. Now, companies of all kinds and sizes can take part in no-hassle mileage tracking and receive standardized, digital reports that comply with IRS regulations.

Ready to improve your business’ tax outlook in 2022? Get started today with MileIQ for Teams.  

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