Mileage reimbursement refers to the money an individual who uses their vehicle for work purposes can recover in the form of rebates or tax deductions. Driving work miles in your vehicle not only makes you eligible for tax breaks, but it is also reimbursable through your expense reports. All you have to do is ensure that you precisely track and document your mileage. Presently, there are no federal laws instructing businesses to reimburse their employees for the miles driven with their private vehicles for work purposes. But most businesses will reimburse their employees as it provides them with an ideal means to attract and retain talent. What You’ll Learn Toggle What Is the IRS Mileage Rate?What are the Factors That Influence the IRS Mileage Rate?What Is the Standard IRS Mileage Rate?The Law and Mileage ReimbursementMileage Reimbursement Under California LawThe FLSA Kickback Rule What Is the IRS Mileage Rate? Vehicle Mileage Tracker The IRS mileage rate is a guideline for mobile worker reimbursement. It offers a universal rate that employers can use to reimburse for business mileage. Also, as long as the employees’ compensation is not above this rate, it is not taxable. What this means is that mileage reimbursement is tax-free as long as it is at or below the standard IRS mileage rate, which is also known as: IRS Safe Harbor Rate Standard Mileage Rate IRS Mileage Reimbursement Rate Business Mileage Rate What are the Factors That Influence the IRS Mileage Rate? The IRS mileage rate provides a guide by which a significant number of employers compensate their employees. For the standard mileage rate to offer all parties a fair and accurate rate of reimbursement, the IRS has to consider the following factors: Cost of Fuel You need fuel to drive; there’s no getting around that. That is why fuel is one of the primary considerations when determining the IRS mileage rate. Vehicle Maintenance Every car, no matter how new, requires the occasional repair or maintenance for wear and tear. The nature of your business drives will also directly impact your vehicle maintenance costs. Insurance Rates Every car needs insurance to be on the road legally. Vehicle insurance is another critical factor that influences the standard mileage reimbursement rate. Vehicle Cost Advancements in automobile technology have made modern-day vehicles not only safer but also a lot more expensive. This is another factor the IRS has to consider when establishing the ideal mileage reimbursement rate. What Is the Standard IRS Mileage Rate? In keeping with Notice 2019-02, announced on January 1, 2019, the standard IRS reimbursement rate for the use of a car is: $0.67 per mile for business $0.21 per mile for medical and moving reasons $0.14 per mile in service of charitable organizations In the past, you could write off unreimbursed mileage at the IRS mileage rate as a deduction, but this is no longer possible under the Tax Cuts and Jobs Act. You also cannot claim moving costs unless you are an active member of the armed forces, moving under orders to a permanent change of station. The Law and Mileage Reimbursement The IRS does not consider reimbursements made at or below the standard rate as taxable income, and thus it is not subject to tax. If you work for an employer who does not offer the standard mileage reimbursement rate, then you get a partial deduction. You can then claim the difference between the IRS rate and the rate offered by your employer. You can also get a tax break because reimbursement payments are a deductible business expense. For this to apply, the reimbursements must meet three criteria: You can only make them for allowable business expenses like traveling for work purposes. Claims must be substantiated by employee records, which prove the time, place, and purpose of travel. You must return any excess reimbursement to the employer. Mileage Reimbursement Under California Law As per Section 2802 of the California Labor Code, an employer may not pass the ordinary costs of doing business to their employees. Section 2802 (a) of the code states that: “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.” In the civil suit Gattuso v. Harte-Hanks Shoppers, the California Supreme Court shed light on the limits of mileage reimbursement under California law. The case also defined the three different methods for employee mileage reimbursement. These are: The Actual Expense Method Probably the most accurate, yet also the most burdensome reimbursement method. It requires both employer and employee to calculate the automobile expenses incurred. The employer then pays out the amount separately. Fortunately, with the help of a mileage tracking app, keeping track of business mileage and documentation is a lot easier. The Mileage Reimbursement Method This is where the employee keeps a record of the number of miles they drove for work. The employer then multiplies this figure with a predetermined amount that approximates the per-mile cost of owning and operating a car to work out the employee’s reimbursement. The Lump-Sum Method Here, the employee need not submit any information about their incurred automobile expenses. The employer pays an agreed-upon fixed amount for automobile expense reimbursement. Lump-sum payments are what is also known as a per diem, car allowance, or gas stipend. Most businesses reimburse employees at the standard IRS mileage rate. But if an employee can prove that they spend more than $0.58 per mile for work, they can earn reimbursement for the actual expense. Remember, employers don’t have to reimburse at the IRS recommended rate. It is optional. The employee has to keep track of their actual travel-related expenses and the miles driven. They can do this through the help of a mileage tracking app like GOFAR. This simplifies the mileage tracking process and generates the supporting documentation for easier compensation. The FLSA Kickback Rule The Fair Labour Standards Act (FLSA) provides an exception on mileage reimbursements for employees who earn minimum wage. The act requires that employers pay their employees finally and unconditionally. If an employee is required to return a part of their wages, whether directly or indirectly, and that “kickback” puts the employee’s hourly rate below minimum wage, the employer is in breach of the FLSA’s minimum wage requirement. In this instance, the FLSA governs the money kicked back to the employer in the form of under-reimbursed mileage expenses. A kickback can arise in one of two ways: Through deductions from the employee’s income to pay for an expense that was for the benefit of the employer When the employer fails to reimburse the employee for those expenses Mileage reimbursement in California is liberating to both the employer and the employee. It leaves room for both parties to work out a reimbursement policy that suits them. An ideal reimbursement policy begins with ensuring that the employee has a valid driver’s license and automobile insurance. It also details the contingencies to cover excluded activities such as personal trips and commutes to and from home. The documentation associated with mileage reimbursement is essential, not only for expense control but for claiming the employee’s tax deduction for mileage reimbursement. Accurate mileage and expense documentation comes from a rigorous process that builds in safeguards, encourages questions, and includes a monitoring system that will uncover abuse. A surefire way to ensure this is through the use of a tried and tested mileage tracking system such as GOFAR. GOFAR offers an advanced mileage and expense tracking system. It includes fully automated mileage tracking and report generating, for hassle-free mileage reimbursement and tax deduction. And it’s IRS-compatible! Visit gofar.co to find out how you can incorporate the GOFAR mileage tracker into your business and streamline your mileage reimbursement today.