Is mileage reimbursement taxable income?

UPDATED JAN 22, 2020 • 2 MIN READ

The short answer is that mileage reimbursement may or may not be taxed as income. In this article we will quickly go over when reimbursements for operating and driving a vehicle for business can be taxed as pay and when it can not. 

Mileage reimbursement is not taxed

If you are careful to meet requirements, employee reimbursement is tax-free:

  • First, if the IRS's standard mileage rate is used, the employee must qualify.
  • Second, the reimbursement must happen under an Accountable Plan.

In short, to be considered accountable, the reimbursement must

  • be based on services done for an employer (i.e. for business),
  • be adequately accounted for
  • have any excess returned within a reasonable period of time.

The IRS lists the details of Accountable Plans online. We recommend you read through our appropriate guide for employees, employers or self-employed as well as the requirements for mileage records to make sure your reimbursement will not be taxed.

Mileage reimbursement is taxed

Any reimbursement that is considered "nonaccountable", e.g. does not meet the requirements for an Accountable Plan, is taxed as income. That means:

  • Any excess reimbursement, compared to the IRS' standard mileage rate, is taxed as pay.
  • Any excess reimbursement that was paid out but not returned in a reasonable time is taxed as pay.
  • Any reimbursement that is not based on adequate records is taxed as pay.

How exactly the employee is reimbursed does not matter — mileage allowance and reimbursements are both compared to the IRS's mileage rate. As long as they are less than or equal to the rate and accountable, the reimbursement will avoid taxation.

 

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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for, legal, tax or accounting advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal, tax or accounting advisor.