Mileage Reimbursement Rules For Employees
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.
Employee mileage reimbursement
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).
Are you wondering if you did your mileage log properly? With Driversnote as your mileage tracker, your trips are automatically logged just the way the IRS likes it.
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.
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 2023 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.
If you are located in California, see our deducated guide to California mileage reimbursement.
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:
- 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.
- You must adequately account to your employer for these expenses within a reasonable period of time.
- 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 tracked automatically. Driversnote lets you track mileage automatically, records all the needed information and generate IRS-compliant reports.
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.
IRS Mileage Guide
- Calculate Your Reimbursement
- Is Reimbursement Taxed?
- How The IRS Mileage Rate Is Set
- Current Mileage Rates
- How To Claim Your Mileage On Taxes In 5 steps
- Mileage Log Requirements
- For Self-Employed
- IRS Medical And Charitable Mileage
- California Mileage Reimbursement
- For Employees
- For Employers
- IRS Mileage Rate 2022
- IRS Mileage Rate 2021
- Mileage Rates 2020