Our Guide To IRS Mileage Reimbursement
Welcome to our guide on mileage reimbursement and deductions in the US. Here, you'll find all the information you need to navigate the rules for everything from reimbursing employees for their business-related car expenses to deducting mileage as self-employed. You will also find information on how to keep mileage records and the current IRS mileage rates.
What is mileage reimbursement?
Mileage reimbursement is the reimbursement you receive for using a personal vehicle for business purposes. The reimbursement covers all costs of owning and driving your vehicle for the qualified miles. The IRS mileage reimbursement covers the use of specific vehicles, namely: cars, vans, pickups, and panel trucks.
Mileage reimbursement is normally calculated on a per-mile basis and covers all expenses of owning and running your vehicle for business purposes. When employees regularly use their own vehicles for company activities, some firms prefer to set a monthly fixed amount for compensation. Employers, self-employed and independent contractors can deduct mileage reimbursement from their taxes.
What is the current federal mileage reimbursement rate?
The IRS has set new federal mileage reimbursement rates applicable from July 1st, 2022:
- 62.5 cents per mile for business purposes
- 22 cents per mile for medical and moving purposes
- 14 cents per mile for charitable purposes (this rate remains the same)
The official mileage rates from the start of 2022, until June 30th, 2022 are:
- 58.5 cents per mile for business purposes
- 18 cents per mile for medical and moving purposes
- 14 cents per mile for charitable purposes
What is considered to be business mileage?
The IRS defines business mileage as mileage that is driven between two places of work, permanent or temporary. Some common types of trips that are considered business-related include:
- Travelling between two different places of work
- Meeting clients and going on customer visits
- Running business-related errands
For more information and examples on what qualifies as business mileage, see the IRS publication on transportation.
Is mileage reimbursement taxable?
Mileage reimbursement is not considered a benefit, so it is not taxable as income. However, if you are reimbursed at a higher rate than the standard IRS rates, any excess is taxed as part of your income. Read more about reimbursement as a taxable income.
Mileage reimbursement rules
If you drive your personal vehicle for business purposes, you might be entitled to mileage reimbursement from your employer.
While there are no federal laws requiring employers to reimburse their employees’ mileage, state laws sometimes require mileage reimbursement. This is the case, for example, in California.
Your employer may reimburse you at the standard IRS mileage rate, at FAVR (fixed and variable rate), or provide you with a fixed monthly mileage allowance.
- The standard mileage rate is meant to cover all fixed and variable costs of using your vehicle for business driving and is typically paid out once you have provided a log of your business mileage.
- FAVR consists of two separate payments, one to cover fixed, and another to cover variable costs.
- A mileage allowance is typically paid upfront on a monthly basis, so you have cash on hand for your month’s business mileage expenses.
Keep in mind all types of reimbursement payments, no matter the chosen method, have to work out to be no higher than the IRS mileage rate per mile. Any excess mileage will be taxed as a part of your income.
Learn more about the differences between the IRS standard mileage rate reimbursement, the FAVR method and mileage allowance.
In order to be reimbursed for your business driving, you need to provide records of your mileage. Continue reading to learn more about keeping IRS mileage records.
Note that as an employee, you won’t be able to claim mileage as a tax deduction in case your employer doesn’t reimburse you, according to the Tax Cuts and Jobs Act.
For self-employed individuals
As a self-employed taxpayer, you can deduct mileage accrued for business purposes. If you use a car solely for business, you can deduct all the expenses related to owning and operating the car. If you use the car for both personal and business travel, you can only deduct the cost of the business use from the total.
There are two methods of calculating your mileage claim as self-employed for tax deduction purposes - the standard mileage method and the actual expense method.
The simplest method of claiming IRS mileage is through the standard mileage method. With it, you use the mileage rate set by the IRS for your business miles.
Use the actual expense method to claim the expenses you’ve had for running your vehicle for business uses throughout the year. Keep in mind this method can be more time consuming and will require collecting all receipts for your vehicle expenses.
Mileage deduction is claimed every year on your tax return. See our dedicated article on self-employed mileage deductions for more information.
Keeping compliant records for your IRS mileage reimbursement
IRS mileage reimbursement rules define what is considered an adequate record of your mileage. Employees and self-employed alike should log the following information:
- Total mileage of each trip
- The time and purpose of the trip
- Your destination
- The total mileage for the year
The records you keep must also be timely - recorded at or near the time of the trip.
Keep in mind if you use your vehicle for both business and personal driving, you should keep track of both, in order to figure out the percentage of business use you can claim mileage reimbursement for.
Learn more about keeping compliant mileage records.
How to calculate the percentage of business use
According to IRS mileage reimbursement rules, you can only claim mileage for the business use of your vehicle. Let's go through a quick example of figuring out business use:
You've driven ten personal trips that total 200 personal miles. During that same period, you've also driven three business trips that amount to 100 business miles. The total number of miles you’ve driven is 300.
To figure out your business use, divide your business miles by the total mileage. In our example, your business mileage is 33% of the total miles you’ve driven.
The equation is simple, 100/300 = 0.33 = 33%.
Then, calculating your total mileage reimbursement based on the federal mileage reimbursement rate is simple: multiply the business mileage you’ve driven by the current IRS mileage rate.
100 business miles x 58.5 cents = $58.5
We hope you found our short overview of the rules of IRS mileage reimbursement helpful.
How to automate your mileage logbook
IRS Mileage Guide
- IRS Mileage Rate 2021
- IRS Mileage Rate 2022
- California Mileage Reimbursement
- Current Mileage Rates
- How To Claim Your Mileage On Taxes In 5 steps
- Mileage Log Requirements
- IRS Medical And Charitable Mileage
- For Employers
- For Employees
- How The IRS Mileage Rate Is Set
- Calculate Your Reimbursement
- For Self-Employed
- Mileage Rates 2020
- Is Reimbursement Taxed?