Employees Can Deduct the Mileage Employers Don’t Reimburse
The purpose of the IRS Standard Mileage Rate is not to impose a rate of payment by employer to employee, but to give the employee a guide for his or her deduction at tax time.
The rate offers compensation to the employee either through payment by the employer or in the form of a deduction for business related mileage on a personal vehicle.
Technically, an employer can pay any mileage rate he sees fit, whether that be over or under the IRS standard. But if he doesn’t meet the IRS standard, the employee can deduct that amount on her taxes.
Calculating the Deductions
A taxpayer can deduct any business miles that were not fully reimbursed at the max IRS rate by the employer. The standard mileage rate for 2012 is 55.5 cents/mile.
There are three possible scenarios for the employee at the end of the year:
- An employee can use the whole benefit if a company does not reimburse mileage at all. The taxpayer can deduct .555 of a dollar for every mile driven in his/her personal vehicle for business purposes (this does NOT include the commute to and from work!).
- If the employer reimburses the whole 55.5 cents per mile, the taxpayer cannot deduct anything.
- If the employer reimburses less than 55.5 cents per mile, the taxpayer can deduct the difference. For example, let’s say the business reimburses 30 cents/mile, then a taxpayer can deduct .255 of a dollar per mile on his yearly taxes.
Use Expense Sheets to Calculate Mileage
Reimbursing mileage with expense software like Timesheets.com allows employers to use whatever rate they like. The administrator sets the rate, employees enter their miles, and the software calculates the total. At the end of the year, employees can run reports on paid expenses to calculate their expected tax deductions.
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what if you are paid a gas allowance then how much do you deduct from the .55 cents in order to receive proper reimbursment for wear and tear on my car… thank you!
Whitney,
Gas allowance is essentially the same thing as mileage. So you’ll need to calculate and keep records of the miles you drive each month. Then multiply that by .55 cents. If the amount your boss gives you is more than the “mileage” you calculated, then you’ll need to claim that as wages on your taxes, if it is less, then you can claim the difference as a mileage deduction. As long as you keep records of both the amount your boss gives you and your mileage, your CPA should be able to figure this out for you at tax time.
Hi,
Good info! Quick question – if I receive partial reimbursement from my employer, I now understand I can deduct the difference between the reimbursement and the federal rate of .555. However, I didn’t do this in tax years 2011, 2010 because I didn’t know I could! I read something else on another site about ” You must use the standard mileage rate the first year your vehicle is used for business purposes.” I looked the IRS regs on this, and it confirmed this statement using an example for “Larry” under the standard mileage rate (http://www.irs.gov/publications/p463/ch04.html#en_US_2011_publink100033935). Does this mean I cannot deduct the difference just because I didn’t know i could in 2010 and 2011?!? I sure hope not…the difference is alot of miles and dollars. My CPA seems to think I can.
Thanks for your help,
JB
JB,
I think the explanation is a little confusing. I am not sure if they are saying you cannot claim unreimbursed mileage on that car forevermore or if you just can claim previous years. It sounds to me like it is the former but I am not a CPA and do not know all of the tax laws. I would say trust your CPA on this!
Peggy
Hello,
I started working for a pet business last year in Sept and I am using my vehicle. My employer wants me to keep track of my mileage but she isn’t paying me my mileage, she told me mileage is tax free, she pays per hourly rate, per visit.
The amount of visits is payed every other week. My employer will minus off the mileage amount which is mulitplied by $.55 that she told me on my visit $ amount to give me a lower pay rate for when she takes taxes out. After the taxes is taken out, my employer will put back the mileage amount she minus off.. I just filed my taxes last week and I didn’t collect mileage reimbusement because it isn’t my business. I enjoy helping her because it will be helping me out in the long run. I know I am putting alot of wear and tear on my vehicle and I am not getting what I should. Was I suppose to collect transportation reimbursement on my taxes? My employer never told me I could or couldn’t collect the transportation portion on my taxes, and I didn’t ask her because I was thinking by her minus the mileage off my visit amounts to give me a lower tax rate is a good deal. It is probably too late now to do anything now.
Hi Cindilyn,
Unreimbursed mileage is an employee business expense. You don’t have to own the business to deduct the mileage. Mileage is tax free in the sense that you can deduct it, but as far as I know mileage is not meant to be subtracted from taxed income. It is claimed as a deduction on your taxes. If this is the way your employer is doing it, then I am guessing that she is essentially paying a part of your paycheck “under the table.” To be absolutely clear on all of this, talk to your CPA.
I am paid a monthly rate tax free for using my car and then I have a fuel car on top of that. Can I deduct anything on top of that?
Hi Sue, you would have to keep track of your mileage to be sure, which technically you should be doing anyway for audit purposes.
I believe I have the same situation as cindilyn, I get paid 30% of the entire amount of revenue my route brings in, then my employer takes the amount of miles for the week x. 555 and subtracts that number from gross pay. I get whatever amount that is tax free and only pay taxes on the remainder. So essentially I’m getting a slight tax break, not actually being reimbursed anything by the company and when tax time rolls around I wont be able to deduct anything. Just another clever way for companies to make you feel like they’re putting more money in your pocket while you’re actually being screwed in the long run. L