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June 27, 2022 - 5 min read

Employee mileage reimbursement rules

As an employee in the US, you might be entitled to receive employee mileage reimbursement from your employer. Find out more about the employee mileage reimbursement rules for your situation.

Mileage reimbursement for employees

If you own or lease the vehicle

If you own or lease the vehicle you drive for business, your employer might reimburse the costs of owning and operating your vehicle for business purposes.

Your employer can use the IRS mileage rate for business instead of having you record all your expenses. If your employer reimburses you at a rate that's the same as or lower than the IRS standard mileage rate, your reimbursement is tax-free if you live up to the IRS rules of accountable plans (scroll down for an explanation about accountable plans) 

If you use a vehicle provided by your employer

If you drive a vehicle owned by your employer, you may still be able to get reimbursed for the expenses of driving and operating the car. You can’t use the standard IRS mileage rate as that also includes the cost of owning a vehicle.

Your employer should tell you what rate to use and which records they need.

If you also work as self-employed on the side

You will need to keep separate records for your business mileage as an employee and as a self-employed individual. We’ve got you covered with our guide for self-employed and you should also read the rest of this overview for employees.

Employee mileage reimbursement methods

As an employee, you can be compensated for your business transportation expenses with different methods. There are a few different ways your employer can provide payouts. Let's have a look at the two most common arrangements.

Mileage allowance

An allowance is paid upfront, typically every month, and the amount is set by your employer. If you happen to get paid more than you spend on your business mileage, you have to return the excess within a certain amount of time (see accountable plan below).

Sometimes, your employer will provide an allowance for a part of your expenses, such as lease payments on a car, and then reimburse other expenses after the fact. That's perfectly fine.

Even if you get an allowance, you still need to be aware of the IRS standard mileage rate. If the allowance comes out to a higher reimbursement than the set standard rate would have resulted in, the excess needs to be reported as income and taxed.

Employee mileage reimbursement

Employee mileage reimbursement can be provided in two different ways: through the IRS mileage rate, or through FAVR (Fixed and Variable Rate).

The IRS standard mileage rate

The simplest arrangement is to use a flat rate per business mile driven. The IRS rate covers both the costs of owning (fixed costs) and driving (variable costs) your vehicle for business purposes.

Be aware that your employer can set any mileage rate they choose – the IRS cents per mile is only a guide. If you receive employee reimbursement at a rate higher than the IRS standard, the excess will be taxed. See the IRS standard 2022 mileage rates for your business mileage.

FAVR - Fixed and Variable Rate reimbursement

A common alternative is FAVR, under which your employer pays:

  • a fixed amount to cover your fixed costs (lease or depreciation, insurance, etc.)
  • a cents-per-mile rate to cover your variable costs (gas, maintenance, oil, etc.)

Be aware that if your employer uses FAVR, you cannot use the IRS standard mileage rate to cover your variable costs. Also, you still have to be aware of the IRS standard mileage rate and compare your payouts to it. Once again, any excess amount will be taxed as income.

Employee mileage reimbursement rules of an accountable plan

To make sure that your reimbursement is tax-free, you need to meet the three rules of an accountable plan as set by the IRS:

  1. Your expenses must have a business connection—that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
  2. You must adequately account to your employer for these expenses within a reasonable period of time.
  3. You must return any excess reimbursement or allowance within a reasonable period of time.

Reasonable period of time

The IRS sets the standard reaction time to 120 days when it comes to keeping records and payments up to date.

  • You receive an advance within 30 days of the time you have an expense.
  • You adequately account for your expenses within 60 days after they were paid or incurred.
  • You return any excess reimbursement within 120 days after the expense was paid or incurred.
  • You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.

How to keep a mileage log

There are no federal requirements for how you keep track of mileage. Your employer might require you to use a certain method, but many employees need to choose for themselves.

Most people use a mileage tracking app to both track their trips and generate mileage reports. Depending on the app you choose, you might even be able to have your trips tracker automatically. Driversnote is one such app, but we always recommend you look for one that best suits your needs.

Another alternative might be using spreadsheets, like Excel or Google Sheets, that you can share with your manager and/or accountants. In this case, you might need to note down odometer readings every trip to figure out your mileage accurately.

FAQ

All expenditures associated with driving for business are covered by reimbursement rates. Gas, insurance, and wear and tear on the vehicle are all factored in. Employers who reimburse mileage based on the standard mileage rate will not pay out a separate amount for petrol or oil changes, as they are already included in the standard mileage rate.
Yes, it is. However, that only applies to meetings that you must attend outside of your office or home. Mileage from home to your work and back is not reimbursed. For example, you can get reimbursement for a meeting you must attend at your client's office which is across town. If the meeting was in your own office, you would not receive reimbursement for driving to your office.
According to the Tax Cuts and Jobs Act, you cannot claim deductions on your business mileage if your employer doesn’t reimburse you.

How to automate your mileage logbook

Manually filling out your logbook can get tedious - see how to automatically track trips for your mileage reimbursement or deductions.

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.