Mileage Reimbursement Rate: Everything You Need to Know
The Mileage Reimbursement Rate refers to the amount of money that can be returned to an independent contractor who uses their personal vehicle for work purposes.8 min read
Mileage Reimbursement Rate
The Mileage Reimbursement Rate refers to the amount of money that can be returned to someone such as an independent contractor who uses their personal vehicle for work purposes (when they are driving around to sell products or driving three hundred miles for a business trip, for example). If you are familiar with the basics of small business ownership, you have probably already been made aware of the practice of tracking how many miles that you drive in your vehicle for work purposes in order to get a nice tax deduction. But getting a tax break is not the only benefit to tracking the work miles you rack up. You can also get mileage reimbursement through expense reports (just make sure you are tracking your work miles for this too).
As of right now, there is not nor has there ever been any kind of federal law mandating that private businesses reimburse their employees for any of miles that they have driven with their personal vehicle but for company purposes. That is where the mileage reimbursement comes in (and if you can’t get that, you can instead deduct from your business mileage). Sometimes the reimbursement rate does not equate the regular mileage rate, in which case you could get a partial deduction. When you get your reimbursement, you probably won’t have to pay any income taxes on it either. However, keep in mind that for you to get tax-free mileage reimbursement, you are not allowed to get a mileage deduction.
In addition to no federal law requiring employers to reimburse their employees for their driving expenses, the IRS does not have any reimbursement rules regarding mileage reimbursement rates. In some states, there is a set requirement for mileage reimbursement.
Every year, the worth of the rate of every mile driven for work purposes is calculated by the IRS. As of 2017, the rate was set at 53.5 cents for every business mile driven. Anyone who can do basic math can quickly see that someone who does a lot of driving for business travel can get a pretty nice deduction.
If you keep track of all of the miles that you drove for work, you can (and should) add those miles to your expense reports. Your employer can then reimburse you for the miles that you drove. Although you can get a nice deduction, you are not able to get a tax break on those miles. This is referred to as “double-dipping” and the IRS doesn’t like that.
If you work for an employer who doesn’t employ the standard mileage rate system, you can get a partial deduction instead. Just claim the differing amounts between the IRS rate and the mileage reimbursement rate that the employer gives you. Don’t forget that your taxable income could be affected by the mileage reimbursements you receive for driving your own car for work. How you could be impacted by the tax varies according to the accountable plan. The accountable plan is defined as an expense allows that must meet the following requirements: 1. Excess allowance amounts are returned by a certain date 2) substation is required 3) and the allowance is connected to some business purpose. If mileage allowance fits one of these descriptions, you probably don’t need to pay taxes on your income.
Legally, there isn’t a set reimbursement rate; businesses can determine the rate themselves. In some cases, an employee will actually offer to pay for the employee’s mileage. That might mean giving them a gas card or some other form of payment to use to gas up the vehicle. For example, Eddie delivers pizza for Johnny’s New York Style Pizza Parlor. Eddie uses his own vehicle to make the deliveries and is reimbursed 40 cents for each mile that he drives because he is delivering pizza. This 40 cent per mile reimbursement is substantially more generous than the current 18.5 cent per mile reimbursement set by the IRS.
If a company and an employee have agreed upon some sort of mileage reimbursement rate, the employee will need to keep some sort of log book in their vehicle so that they are able to record all of their business miles driven. You need this record for your expense report. In the log book, record the date and time that you drove, how many miles were driven, and what the business travel was for (i.e. driving to a three-day business conference or meeting a client in the next state over). If you provide the aforementioned information, it should be sufficient enough. However, the specific details of the mileage log book will be different with every company, so make sure that you and your employer decide upon something that fits both of your need. It is a good idea to get that rate amount in writing.
Some businesses might only tell their employees to record miles that they drove for big business trips while other businesses might be very rigid and particular about keeping record of driven miles. Depending on your employer, you might have to include everything from the make and model of your car to the name of the clients that you met with. Basically, the more detailed your log book is, the better. A detailed record will make your chances of getting a fair reimbursement rate better whereas poor record keeping could mean that your expense report gets declined by your employer. Something even worse that could happen is that your employer could reprimand you if they have reason to believe that your report is fraudulent. When you keep a detailed log book, you substantially lower the risks of making your record keeping look illegitimate.
In general, most employees keep track of longer driving trips and don’t pay much attention to smaller, shorter trips done for their work. However, those short driving trips could add up to a hefty reimbursement in the long run. If you want an easy way to track your miles and don’t feel organized enough to make your own log book, download the MileIQ app on your smartphone. This app will allow you to automatically track your miles on the road and calculate a fair reimbursement rate. What is even more convenient is that this app will allow you to quickly download and print the tracked miles and turn it into an expense reports. On the report, it will include the number of miles that you have driven, the vehicle (or vehicles) that you drove, the type of business that you were driving for, and any other important additional notes.
Smartphone app that track the number of miles that you drive are an incredible asset from frequently driving employees because it accumulates all of the necessary and detailed data needed to greatly increase your chances of receiving an appropriate mileage reimbursement rate from your employer. If an employee is physically disabled and doing a lot of driving for their company, they most likely are required to drive some sort of modified or specially equipped vehicle in which case the reimbursement rate is currently set at 40.5 per mile (which makes sense because these vehicles are more expensive than traditional vehicles). Mileage reimbursement rates are not just for people who operate vehicles for work; this reimbursement can also be granted to anyone who flies a private aircraft, with the current reimbursement rate set at a generous $1.31. per mile. Another example is an employee of UC San Diego who loans out their personal vehicle to UC San Diego for work purposes. In this situation, the reimbursement rate is set at 33.5 cent per mile. When it comes to motorcycles, they are not authorized vehicles for business use.
The Employers Relationship with the Mileage Reimbursement Rate
If you run a business and have several employees who frequently drive their personal vehicle for work purposes related to your business, you may be surprised to learn that you might not even have to reimburse the miles that they drove. As long as the state you live in does not have specific legal requirements regarding mileage reimbursements, you are free to pay more or less than the current reimbursement rate set by the IRS. Basically, so long as the amount of miles driven by your employee with their personal vehicle does not cut into their wages so much that they are making below minimum wage, you probably do not have to reimburse them.
If you decide not to reimburse your employees for their driving miles, they can instead keep a log book of all of the miles that they drove for your company and deduct those miles when they do their taxes. As we stated in the previous paragraph, there is no law that states that you are not allowed to reimburse less than the IRS reimbursement rate, but the majority of employers don’t do this (and needless to say, employees don’t like it). When an employee drives their personal vehicle frequently for your company and has to pay out of pocket for gas, car repairs and other vehicle expenses, it can put a serious strain on their wallet and add greater frustration knowing they won’t get their money back until tax time (which is just once a year).
Although no law currently exists that states mileage reimbursements for employees are mandatory, a BLR survey discovered that a sizeable 73 percent of businesses do indeed reimbursed their employees the highest rate set by the IRS. You can track your employee’s miles with mileage apps or certain software programs such as Timesheets.com. With this program, you set the rate, the employee logs the miles that they drove, and the software program spits out the total reimbursement rate. When the end of the calendar year arrives, your employee can then get their expenses reported and get tax deductions. Miles driven by the employee that are being reimbursed need to be tracked carefully for tax reasons.
As you have probably noticed, the cost of gas has dropped considerably in the last few months and will probably continue to do so for quite some time. This has a direct effect on mileage rates because the lower the gas prices are, the lower the mileage rates will be. Every year, the IRS sets mileage rates and in 2015, those rates were 57.5 cents higher than they are today in 2017 (this applied to business driving). For driving done for moving rates and medical purposes, the rates were 23 cents more in 2015 than they are today. For charity, the rate has stayed the same 14 cents. This 14 cent rate has stayed the same since 1997 (2017), even though other rates have changed in the last few years. In the last five years, the mileage rate for businesses has continued to fall considerably. Keep in mind that these current rates are simply suggestions by the IRS; you are free to set your mileage rates higher and lower than the going average. Whatever you decide to do, it cannot be stressed enough how important it is to carefully track your miles.
If you work in the medical or charity sector, tracking your mileage can be extremely beneficial in the long run, whether you are an employee or an employer. When you are driving out of town, you might also rack up some parking fees and tolls when you are driving for business purposes, medical reasons, or anything else.
Need additional information related to varying mileage reimbursement rates and how they can affect you as an employee or an employer? Or are you in need of legal assistance in setting up a plan for mileage reimbursement. Don’t hesitate to post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.