Mileage reimbursement is not mandatory in the US (except in some cases). However, the IRS issues a yearly Standard Mileage Reimbursement Rate as a guideline for the following purposes:
- It is the rate employees use if they claim the mileage deduction at tax time. Some taxpayers can still claim mileage deductions, but some cannot. Read more here.
- It gives employers a reasonable reimbursement rate based on current research.
- The rate is used to figure the minimum wage for employees who kickback money from their own pockets.
Some people want to know if they can reimburse less than the standard mileage rate. Others want to know if they can reimburse more. The answer is yes to both.
Reasons Your Mileage Reimbursement Rate Might Be Less
The IRS rate is based on driving costs such as average gas prices, average wear and tear on a vehicle and the average costs associated with that repair. Obviously, these prices will be a little different in different parts of the country. Just about everything is more expensive in New York and California than it is in Kansas so there is room for adjustment on the part of the employer.
There may be any number of reasons besides location for which an employer might have for adjusting the rate. Here are just a few:
Lower gas and repair costs
In the West and North-East, for example, gas prices are the highest. In the South (minus Florida) and parts of the Midwest gas prices are the lowest. Take a look at Gas Buddy to see a color-coded map of the gas prices across the US. Prices of labor for car repair also vary by region.
It would be no surprise if an employer in Mesquite, Texas didn’t want to reimburse as much as an employer from San Jose, California did. It doesn’t cost as much to fill the tank and it doesn’t cost as much to get the brakes replaced.
Employee drives a fuel efficient car
If the employee drives a super fuel-efficient car, like a Prius or even a great new compact car, then filling up the tank is going to happen less frequently than if the employee were driving a 1997 Ford Explorer. Of course, the employee will be paying for that gas savings in the form of a higher monthly payment, so maybe it all evens out in the end.
Employee leases a car
Another reason an employer might decide to give an employee less than the average mileage rate could be because the employee is leasing the vehicle he uses for business trips. In the two years that the employee leases that car, he probably wouldn’t do anything more to it than get the oil changed.
Example:
If the employee were in Denver, Colorado, where gas prices have been averaging about $3.00 per gallon, he was leasing a new Chevrolet Sonic Eco which gets 40 miles to the gallon, and he was only going to get an oil change every 5000 miles, then the costs of driving 100 miles a week for work would be:
- $375 in gas after 50 weeks (He only needs 2.5 gallons of gas per week. That amounts to $7.50 per week. Take this times 50 weeks and you get $375.)
- $25 oil change after 5000 miles (once – for work – in 50 weeks)
The employee only has to spend $400 on business driving expenses for the whole year.
If the employer were to reimburse at the full IRS rate, he would be giving the employee $2,700 (based on the 2016 rate of 54 cents per mile). This is quite a bit more than the employee needs to be reimbursed – unless the employer just wants to help with the car payment. Now, reimbursing at the IRS rate is fine, but may not be necessary for this scenario.
The good news for the employee is that if his employer does decide to reimburse less than the full rate, he can deduct the rest at tax time, regardless of how awesome his leased car is.
Reasons Your Mileage Reimbursement Rate Might Be More
Not everyone can afford to drive such a great car for work. Most delivery drivers have old cars and salespeople who drive their own vehicles don’t always have the nicest cars either. Short of leasing, it’s hard to see why anyone would want to beat up their own car for their job. It’s costly and annoying to have to take your car to the shop for one problem after the other.
Employee drives an old SUV
Most employees drive clunkers for work and so their repair and gas needs are going to be on the higher end. The employee who lives in San Jose, where gas has been averaging about $3.5, and drives the 1997 Ford Explorer gets about 17 miles per gallon. If he drives 100 miles per week then he’ll need $1029 in gas after 50 weeks. That’s quite a difference from Mr. Fuel efficient! Chances are he’s also going to need new shocks and who knows what else in that year. He could easily need $1000 at any given moment for a repair, maybe twice in a year. If this were the case, the employer might want to reimburse slightly more than the average rate.
Employer gives a set “mileage allowance”
The employer may not want to calculate his mileage payments based on the actual number of miles the employee drove. He may not want to do any calculations at all. This is fine as long as he comes up with a fair number that the employee is happy with. If the employer gives the employee $50 each week for whatever he needs for his vehicle and he sometimes drives a lot and sometimes a little, it might all even out, it might end up being less, and it might end up being more than the average rate would account for.
It’s important to know, however, that the IRS counts excess mileage reimbursement as wages and so the employee would need to claim that excess on his taxes.
Another important thing to know is that employees need to keep mileage records if they are either receiving payments from their employers or if they plan to deduct the mileage on their taxes.
Mileage Reimbursement and Employee Retention
An employer can choose to reimburse employees less or not at all, although this may not be a great retention strategy! Not reimbursing employees for mileage can make them feel undervalued.
The last thing you want is an unhappy salesperson. Not only will they not be effective at gaining new customers and closing deals but they may spread a bad word about the company while they’re out on business.
Likewise, you’re not going to want an unhappy delivery driver either, one who picks up or drops off orders and is in charge of stock. Unhappy employees don’t take care of business very well so it’s better to make employees happy.
But remember, you can claim your own business expenses on your taxes so you aren’t seeing a total loss on the payments to your employees.
And lastly, it is actually pretty common for employers to reimburse their employees for mileage. A BLR Survey found that 73% of respondents (144 in total) reimbursed employees the max IRS rate.
36 Responses
I work for a non profit that pays 54 cents per mile. When I checked the state website it was higher. My company pays me from home to a site and back, for mileage. I was recently told we might get a stipend instead of cost per mile. Yikes! I live far from my sites and the mile helps with gas and maintenance. What are the benefits to me? I am not happy about this news.
How can I respectfully articulate my concerns?
Hi Joni. Is hard to say without knowing your distance to the sites and what the stipend will be. If your state’s mileage rate is higher than the Fed’s mileage rate, it may benefit you since you’ve been getting the Fed’s rate. If it were me, I would start by asking some questions and informing HR that you live quite far and want to know how this change will affect your overall reimbursement. I wish you luck and feel free to come back and let us know how it goes!
i work for an employer that makes us pay for gas that we use in their vehicles it comes out of the pay check.
If your employer doesn’t reimburse you for mileage expenses, which includes gas, then you may be able to deduct it on your taxes.
My husband uses his truck almost exclusively for business. He is not reimbursed for mileage by the company. Fuel, tolls, etc are paid with company card. Do we need to reduce the mileage deduction by the amount the company pays for fuel, tolls, etc?
Kathleen, no. Those items are separate and outside the standard IRS rates.
He may deduct the standard IRS rate for use of his truck, or deduct actual costs. Actual costs will likely be higher, but requires better record keeping. IRS scrutinizes these deductions so keep good contemporaneous records of actual spend and actual use to separate personal use (not deductible). You’ll be fine with good records.
I missed important detail. Tolls and parking etc are separate, but gas is part of IRS standard rate, so yes to be clean i would subtract.
That’s an odd policy–partial reimbursement for gas. In operating a car, gas is the 2nd biggest expense of a car after depreciation. Might even be 3rd biggest expense in an older car/truck with more maintenance costs, or after insurance with male teenage driver.
Good luck
Don’t employers claim employee’s mileage for their own tax benefits?
Reimbursement to employees is cost of doing business, so of course it is a deduction from revenue to compute net profit–the basis of federal and state income taxes.
There is no “benefit”. It is a cost of business.
Steve
Employers can only deduct the amount of gas expense they pay for. If they pay .35 cents a mile to the sales team for mileage, the sales team can deduct the remaining amount allowed by the IRS.
Can my employer charge the customer a per mile rate but pay me less than that rate per mile to drive there. Also this is in California.
I am not an expert on the rules for California specifically but it likely that it’s fine. To be sure, you can check with a lawyer.
Are there any H.R. legal guidelines regarding mileage reimbursement; specifically paying it to one employee or job description and not paying it for others? I work for a small non-profit with 5 “regular” employees and 1 new grant-funded, paid intern. 3 of the employees and the intern all routinely work “in the field”. The employees’ wagest are much higher than the part-time hourly intern. Is it permissable / legal to pay the intern for mileage and not the others? Thank you.
Hi Jennifer,
I would suggest checking your state’s laws to be sure but to my knowledge it should be fine to reimburse for some and not others as long as it’s not discriminatory.
Many fellow employees will rent a car when they need one for business to avoid putting excess wear and tear on personal car, especially leased cars with mileage limits. Car’s I’ve owned all cost about $1/mile to run, all costs included–both fixed and variable costs combined. I’d rather not wear out my car for work, and so will limit its use when the mileage isn’t significant.
Of course rental car costs the employer much more than the IRS legal rate.
An employee wrecked the company vehicle and had to drive their own 480 miles. They used the company gas card during that time. Now, they have turned in a mileage reimbursement sheet. If they used company gas card for fuel, what would the cost of wear and tear be on the vehicle.
Hi Melanie,
The mileage reimbursement would have been 480*.54 = $259.20. Just subtract whatever he used from the gas card from that amount and that’s what you would owe him. Because, technically, you already partially paid him.
Corporate America sucks. They would want us to work free if they could get away with it. ….which its almost coming to that. Gets worst every year in the US…..
What is the rebursement for miles from ks to ok city. 53.4 ? Co pays expenses acct says Miles would be better then gas. However gas now is 245 per gallon still after I figured out miles per gal. Miles seems to be a better deal.
You aren’t taking into consideration that this is only a deduction, which means that if you are in the 40% tax bracket, you are only getting back $.21 from the government. IRS only takes the .54 off of your income, not off of your taxes. So if your employer is giving you .38, and it gets taxed at 40%, you would be back at over .22, which is better than the .21 you just got returned from the government.
My employer is giving me a car allowance of $600.00 pretax in my paycheck. Do I deduct this amount when I file my taxes as non income?
I drive an average of 2000 miles per month using my personal car and receive 10 cents less than the IRS average reimbursement. That’s $200.00 less per month or $2400.00 per year. I feel like I’m unfairly treated. There is no car allowance. What should I do?
My employer pays a car allowance each month of 400$ and then only pays .14 a mile. Am I able to claim on my taxes or does the allowance cancel out the low per mile rate? I usually drive about 2000 miles a month
I’m a caregiver and run errands on average 80 miles a week for my client using my car and gas. My agency I work for charges him 75 c a mile but Barely reimburse me for half of that. I find that to be extremely unfair and do not understand how that could be legal.
Talk to a lawyer about it. That does sound unfair.
What is the rate you pay an employee if he uses his vehicle but you pay for the gas?
Hi, I work for a nonprofit that pays the IRS rate of reimbursement for MOST employees. However, I, and a couple of others, are now under a grant that allows for less. So, some of us, who do the same jobs, are being reimbursed at a lower rate than others.We travel a lot so the difference makes a big impact. Is this okay or should it be equitable?
I work for a public school system and have historically and still do so currently reimburse employees for mileage traveled to and from work (if they live more than 20 miles away from their assigned school). Is this allowed under current tax laws?
Thank you,
My employer owns the car I drive. He currently pays for everything, all gas wether personal or work, all insurance / registration and all repairs. Business has really slowed down and my employer is now asking for a milage log. My employer will still pay all car costs, just not personal fuel, he will only pay what is turned in on the milage log. The milage log will be varified by a tracking system.
Is this legal?
What is a fair reimbursement if I do not pay anything for the car?
From what I understand, Under IRS regulation, your employer is only obligated to pay for business-related costs. If you use the car for personal use your employer is not required to help pay for your expenses. A mileage log will help you accurately track of how many miles you spend driving for business purposes. As far as the legality of your mileage log, your employer should be allowed to track your mileage through GPS, especially if this is a company-owned vehicle. Keep in mind, however, that states have their own privacy laws. I would check with a local labor board to make sure that this doesn’t violate any of your state’s laws. The reimbursement rate can be determined by your employer because the IRS rate is typically just a guideline and not required.
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Thank you so much for posting this. I think this really puts things into a different light. I mean, I have read about this stuff before but the way you write just makes it clearer. If that makes sense lol