Many employers do reimburse employees who use their own vehicles for work. 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 Internal Revenue Service (IRS).
Standard Mileage Rate
Effective January 1, 2023, the standard mileage rate for business travel is 65.5 cents per mile. 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 significant deduction.
Company Mileage Reimbursement Rates
Most employers will reimburse at the Internal Revenue Service 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. When qualified workers are difficult to find during economic expansions, employers are more likely to provide competitive rates of reimbursement. The IRS requires reimbursement payments to be made separately from salary, with no taxes withheld. Some employers will, therefore, process expense payments through the accounts payable system to keep them separate from payroll and to maintain compliance with IRS laws.
Government Employee Reimbursement
Federal government employees are reimbursed at the Privately Owned Vehicle (POV) mileage reimbursement rate set each year by the General Services Administration (GSA) based on research conducted by an independent consulting firm regarding current costs for utilizing a vehicle. The POV rate is .625 per mile effective July 1, 2022.
Fixed and Variable Rate (FAVR) Reimbursement Programs
There are alternatives to mileage reimbursement as ways for employers to compensate employees for business-driving expenses. Employers may reimburse employees under a Fixed and Variable Rate (FAVR) reimbursement program, in which employees are reimbursed for fixed costs (such as insurance, taxes, and registration fees) and variable vehicle expenses (such as fuel and maintenance). The reimbursements are tax-free to employees if certain expense-accounting requirements are met. Another option for employers is to provide employees with a flat car allowance for using their vehicle on the job, such as $500 per month, to cover the cost of fuel, wear and tear, tires, repairs, and more.
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 if you require mileage reimbursement. Without detailed records, your expense report may get rejected. Or worse, your employer could potentially take disciplinary action if they think your claim might be fraudulent. Keeping a pen and paper in your car is one method, albeit a tedious one; a better choice is a mileage tracking app that automatically tracks 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.
Taxes on Mileage Reimbursement
Mileage reimbursements are considered tax-free disbursements by employers as long as they are documented and don’t exceed your actual expenses.
