Company mileage reimbursement programs can be great for your business and your employees if done correctly. In some cases, they can also be a hassle and take up a lot of time from your employees. All the endless mileage tracking, trip logging and reporting can seem like it will never end. There are some steps you can take as an employer to make sure your company mileage reimbursement stays on track and makes your employees happier.
Creating a successful company mileage reimbursement program is actually a lot easier than you think once you get a clear overview of the rules. This is what we will try to help you with in this guide.
Company mileage can briefly be described as - an employer pays a cents-per-mile allowance to employees to cover automobile costs incurred as part of their job. The IRS has set the company mileage reimbursement rate for 2021 at 56 cents per mile. For the 2022 mileage rate, keep an eye out on the IRS website - the new rate should be available sometime in the middle of December 2021.
The 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 $560 (if the standard company mileage rate was used). However, to do this, your employee must provide you with proof that they have driven the said miles. The proof normally comes in the form of a mileage log - a log of all the business and personal trips one takes with a specific vehicle.
Operating a vehicle for business purposes incurs considerably more costs than just gas. The list of expenses that are covered is extensive. Oil, tires, taxes and registration, maintenance, and auto insurance are all included.
Vehicle costs that are reimbursable may be higher than you think. It is possible to get or provide a higher or lower reimbursement than the standard mileage allowance rate.
Automatic tracking and logging
It is common for companies to use the standard rate, however, it is not mandatory. The standard rate is recommended by the IRS and may be a perfect fit for your company but you are not obligated to use it.
You may wish to raise your rate if you do business in an area where petrol and tolls are more expensive. If you choose a rate that is higher than the federal rate, however, the excess income will be taxable to the employee.
However, if you operate in a less expensive area, you may want to consider using a lower rate. The standard mileage rate is calculated using changing national averages and may not be a perfect fit for all areas of the US.
Regardless of whether there is a reimbursement program in place, employee mileage is tax-deductible. One does not have to pay taxes on a mileage reimbursement if it's less than or equal to the IRS mileage rate ($.56/mile in 2021). Some employers provide a set monthly automobile allowance as well as a low mileage rate. The allowance is taxed in this situation, but not the mileage rate.
There are a few steps to proper mileage reimbursement. The two most important things to keep in mind are proper mileage tracking and logging.
For employees to get mileage reimbursement, they must provide proof that they have driven the said miles. One way to get that proof is by tracking mileage for each trip. If setting up a 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 reports will be quicker. However, you can also leave it entirely up to the employee's 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 mileage tracking which can save you and your employees lots of time.
The IRS expects everyone who wants to receive reimbursement to keep a compliant mileage log. The mileage log serves as proof for showing the IRS and in some cases your employer that you have driven the miles you claim reimbursement for. The following is what you must generally include in an IRS compliant mileage log.
If your employees have tracked and logged 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.
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. It is essential for you to understand how mileage reimbursement works if you plan on setting up a reimbursement program for your company. Feel free to reach out to us with any questions you may have at firstname.lastname@example.org and we will help you set up.
Remember that you can also try Driversnote completely for free (no binding or trial of any sort) and find out if it is the right fit for you.
Q: Does my company mileage reimbursement have to go through payroll?
A: No, the mileage reimbursement does not need to pass payroll if it falls within the company mileage reimbursement rate. However, if the reimbursement surpasses the regular mileage rate, it is considered payment, meaning it then has to go through payroll and is taxable.
Q: What is the standard company mileage rate for 2022?
A: The standard company mileage rate for 2022 will be released some time in the middle of December. Stay tuned and we will let you know as soon as it is out.
Q: Is there a Teams option for mileage reimbursement?
A: Yes, some apps offer a special teams option for your company. The Teams option allows you to reduce your managers and employees' workload. Quickly review & validate your team’s reimbursement claims with easy workflows for submitting and approving mileage.
*sign up for teams button*
Q: What is FARV?
A: FAVR (Fixed and Variable Rate) is a common alternative to mileage allowance in which you pay a fixed amount to cover your employees' fixed costs (leasing, insurance, etc.) and a cents-per-mile rate to cover your employees' other variable costs (gas, maintenance, oil, etc.)
If there are any unanswered questions you have, try checking out our IRS mileage guide.