Employee Mileage Reimbursement

IRS Rates and the Car Allowance

Man driving car
Getty Images/Westend61

If you drive your own car to carry out your job responsibilities, your employer may reimburse you for the cost of driving your own vehicle. However, transportation to and from your place of employment is not reimbursable. Another employee option is the car allowance.

Employee Reimbursement for Using Your Own Vehicle

Employee reimbursement for using your own automobile will vary somewhat by employer and sector, but most organizations compensate employees at approximately the Standard Mileage Rate set by the IRS or the Privately Owned Vehicle Reimbursement Rate determined by the General Services Administration (GSA).

As of 2017, The IRS rate is set at 53.5 cents per mile traveled, down from 54 cents for 2016 and 57.5 cents in 2015. This fixed, standard rate incorporates the cost of insurance, registration, gas, oil and maintenance. For someone who drives a lot for work, this can result in a pretty significant deduction.

Most employers will reimburse at the IRS or GSA rate since they can deduct up to that amount as an expense when they file their corporate income tax return, though there are other complex tax formulas that employers can use. The Internal Revenue Service requires reimbursement payments to be made separately from payroll with no taxes taken out. Most employers will therefore process expense payments through the accounts payable system to keep them separate from payroll and to maintain compliance with IRS laws.

If your employer is reimbursing at or near the GSA or IRS rate, then you can feel assured that you are getting a fair deal.

If you are receiving less than the IRS rate, then you may be able to deduct some of the expense on your personal income taxes

Government Employee Reimbursement
Government employees will always be reimbursed at exactly the GSA rate if the use of a privately owned car is authorized or when no government vehicle is available.

 

Automobile Expense Reimbursement Requirements
You'll need to provide a mileage log, gas receipts and documentation of any other allowable expense receipt related to your car. Without detailed records, your expense report may get rejected. Or worse, your employer could potentially take disciplinary action if he thinks your claim might be fraudulent. Many employers require contemporaneous record keeping, just like the IRS. Don't attempt to estimate your mileage as that might violate your employer’s policies. Keeping pen and paper in your car is one method, albeit a tedious one; a better choice is a mileage tracking app that automatically track your trips in a contemporaneous log that you can print or download. It's an efficient way to keep track of mileage, start and end-points and the business purpose for the drive to include with your expense report.

Tax Consequences
Mileage allowances are considered tax-free disbursements by employers.  However, your employer cannot directly pay for operating costs like repairs or maintenance for your car without tax consequences. Other expenses like tolls directly related to business transportation can be reimbursed without taxation provided you have receipts.

Consult your tax accountant for advice if you are uncertain of how the regulations apply to your situation.

Car Allowance

Your employer also has the choice of offering you a car allowance, provided that at least five or more employees receive a car allowance in the company. This is a flat rate paid at least quarterly under federal law. Employees who are eligible for a car allowance don't get reimbursement for mileage, but rather receive reimbursement for gas used on trips to conduct company business along with any repair or maintenance costs related to business.

For this method of reimbursement, management employees must comprise a minority of the employees who receive a car allowance, which is not considered a business perk. A car allowance is not taxable and is isn't included in the employee's gross wage; rather, it's listed separately on the payroll stub and taxes are not deducted.

More About Travel Related Expenses