Company mileage reimbursement guide
Company mileage reimbursement programs can be a great benefit for your employees and a powerful tool for your company. However, if not well-designed, they can also be a hassle and take up a lot of time and effort. All the mileage tracking, trip logging and reporting can seem like a burden if unnecessarily complicated. There are some steps you can take as an employer to make sure your company mileage reimbursement stays on track and makes your employees happy.
Creating a successful company mileage reimbursement program is actually easier than you might think once you get a clear overview of the rules. This is what we will try to help you with in this guide. For a general overview of mileage reimbursement in the US, you can check out our IRS mileage guide.
Company mileage reimbursement explained
Company mileage reimbursement is a cents-per-mile allowance to employees to cover their personal automobile costs incurred as part of their job. The IRS has set the company mileage reimbursement rate for 2022 at 58.5 cents per mile driven for business use, up 2.5 cents from the rate for 2021. Note that the IRS has decided to increase the mileage rate from July 1, 2022 to 62.5 cents per business mile. The official mileage reimbursement rate is advisory, and as a company, you can choose to reimburse employees at a lower or higher rate than the one set by the IRS.
How to calculate mileage reimbursement
Company mileage reimbursement is calculated by multiplying the standard mileage allowance rate (or the alternative rate you are using) by the miles driven over a payment period. Let's say your employee has driven 1000 miles this month. The amount of their reimbursement will be $585 (if you use the standard company mileage rate for 2022). However, to do this, your employee must provide proof that they have driven the said miles. The proof normally comes in the form of a business mileage log - a log of all the business and personal trips an employee takes with their personal vehicle.
What does company mileage reimbursement cover?
Operating a vehicle for business purposes incurs considerably more costs than just gas. The list of expenses that are covered is extensive. Oil, tires, taxes and registration, maintenance, and auto insurance are all included.
Employees’ vehicle costs may be higher than you think - consider the average cost of owning a vehicle in your area. It is possible to provide a higher or lower reimbursement than the standard mileage allowance rate.
You are not obliged to use the IRS mileage rate
It is common for companies to use the standard rate, however, it is not mandatory. The standard rate is recommended by the IRS and may be a perfect fit for your company but you are not obligated to use it.
You may wish to raise your rate if you do business in an area where petrol and tolls are more expensive. If you choose a rate that is higher than the federal rate, however, every additional penny will be taxed as income to the employee.
However, if you operate in a less expensive area, you may want to consider using a lower rate. The standard mileage rate is calculated using changing national averages and may not be a perfect fit for all areas of the US.
What if the company doesn’t have a mileage reimbursement program?
If employees are not reimbursed for their business-related mileage, they can claim a tax deduction at the IRS mileage rate for each mile they’ve driven for business at tax time.
How is company mileage reimbursement done?
There are a few steps to proper mileage reimbursement. The two most important things your employees should do are proper mileage tracking and providing sufficient records of their business miles.
Tracking business mileage
Employees must provide proof that they have driven the business miles they claim reimbursement for. One way to get that proof is by tracking mileage for each trip with a business mileage tracker. If setting up a mileage reimbursement program is of interest to you then you may want to consider setting a standard way in which everyone in the company tracks their mileage. That way generating mileage records will be quick and seamless. However, you can also leave it entirely up to the employees’ wishes on how to track their mileage.
GPS mileage tracking is common nowadays and part of any modern mileage tracking app out there. Some apps also offer automatic business mileage tracking which can save you and your employees time. Driversnote offers this option through the use of our iBeacon device, which automatically tracks all your business trips.
Records for company mileage reimbursement
The IRS sets the rules for what is considered a compliant mileage record. The mileage log serves as proof for showing the IRS or the employer that employees have driven the miles they claim reimbursement for. The following is what a compliant mileage log must include.
- The time and date of each journey.
- The total distance covered (odometer readings can be useful for noting business miles).
- The destination of each drive.
- A description of the purpose.
So, how do you reimburse employees for company mileage?
If your employees log their driving, then reimbursement should be a breeze. We will quickly guide you through how reimbursement works if your employees or you are using the Driversnote mileage tracking app.
- The first step is to make sure everyone has downloaded the mileage app and gotten a quick setup introduction on the Driversnote help center.
- Make sure everyone understands how to track and log their trips.
- Let’s assume you as the company request a trip report at the end of each month. In that case, the employees could quickly generate a report and share it directly with their supervisor or accountant.
- Lastly, the one responsible for reimbursement would approve or reject the reports and reimburse their employees. Employees can get reimbursements in their next paycheck, as a separate check, or through direct deposit into their bank account.
Company mileage reimbursement does not have to be a hassle if you have the right tools. Migrating from paper logbooks to using a mileage app can save your company a lot of time and effort. Feel free to reach out to us at email@example.com and we will help you get started with Driversnote for Teams.
Remember that you can try Driversnote completely for free (no binding or trial of any sort) and find out if it is the right fit for you.
- Self-Employed Tax Deductions
- Free printable IRS mileage log template - PDF, Excel and Sheets versions
- How to keep an IRS compliant mileage log book
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