What Is Mileage Reimbursement? Quick Guide

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Mileage reimbursement refers to the money paid back to an employee to cover the cost of using their private vehicle for work. The reimbursement may be in the form of a rebate or tax deduction.

Presently, there are no federal laws that require employers to reimburse workers for business mileage. However, most employers compensate their employees’ mileage expenses. Mileage reimbursement is an appealing method of attracting and retaining talent.

Also, California requires employers to indemnify their employees for all expenditures incurred during the discharge of their jobs. These include all expenses incurred while driving their private vehicles for work-related purposes.

In this article, we will take a look at the various options available to you as an employee for mileage reimbursement. We will also look into the options available to you if your employer does not offer business mileage reimbursement. Or if the compensation rate provided is less than your actual expenses.

But first, we need to understand the standard IRS mileage rate.

What is the IRS Mileage Rate for 2021?

Every year, the Internal Revenue Service, or IRS, puts out an optional standard mileage reimbursement rate. This is what we refer to as the IRS mileage rate.

The rate is set based on a study of the cost of owning and operating a car in the USA.

Keep in mind, however, that the IRS mileage is merely a recommendation. The IRS DOES NOT require any employers to use this rate to reimburse their employees.

According to Notice 2020-05 issued by the IRS, the standard mileage reimbursement rates for 2020 are as follows:

  • 56 cents per mile for business mileage
  • 14 cents per mile for charity work
  • 16 cents per mile for medical mileage expenses
  • 16 cents per mile for military moving reasons

In the past, you could write off unreimbursed mileage at the standard mileage rate as a deduction. However, this is no longer possible under the Tax Cuts and Jobs Act.

Note compensation for moving expenses is only available to the active members of the armed forces.

What Does the IRS Mileage Rate Cover?

Now that you know the current IRS reimbursement rate, you must wonder, what does it cover? And even more importantly, are you eligible? Well, here is a quick guideline to help you answer these questions.

See, even if you use your vehicle every day for various purposes, you might still not qualify for mileage reimbursement. That is why it’s crucial to understand the reimbursement guidelines before claiming any compensation.

Mileage Reimbursement for Business Use

If you use your private vehicle for work-related purposes, you may be able to deduct some of your car-related expenses from your taxes.

The good news is this applies to both employer and employees, and even self-employed people.

You can choose to calculate your mileage reimbursement based on your actual expenses. Alternatively, you can also opt to use the standard business mileage rate set by the IRS.

But before filing for reimbursement, you must acquaint yourself with the fine print details in your employer’s policy. Different rules dictate who can claim business mileage reimbursement and when.

For instance, if your employer’s policy does not cover your travel expenses, then you can’t claim an itemized deduction for business mileage. Or any other unreimbursed expenses.

Go through Publication 535 to find all the relevant information about the process of mileage and expense deductions.

You should also make use of a mileage tracking app to track all your business-related expenses. A mileage tracker makes expense monitoring a lot easier. It also captures all eligible expenses so that nothing falls through the cracks.

Mileage Reimbursement for Medical Use

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Vehicle Mileage Tracker

In addition to business use, you may also be able to deduct some of your vehicle expenses if you use your car for medical purposes. For instance, if you have a medical condition that requires regular trips to the hospital.

In this case, you should track your mileage and expenses associated with the visits. You can then claim mileage deductions either through the standard medical rate or through an itemized deduction.

Keep in mind, however, that to qualify for medical mileage reimbursement, you need to also file for a medical expense deduction on your taxes. And to be eligible for these deductions, your total medical expenses must amount to at least 7.5 percent of your gross income.

Mileage Reimbursement for Charitable Works

Here, you can only claim deductions for unreimbursed out-of-pocket expenses incurred while using your car for work.

Furthermore, the work must be for an organization the IRS recognizes as charitable.

As with the other expenses, you can choose whether to itemize your deductions or opt for the standard charitable works mileage rate.

Find out more about how charity work will affect your taxes and mileage reimbursement in Publication 526.

Mileage Reimbursement When Moving for the Military

You can also qualify for mileage reimbursement if you’re a member of the US military on active duty, moving in response to a military order or station change.

You can also claim a portion of the costs you incur on any vehicle you use to facilitate the move, on top of the other moving-related expenses. But in this case, you can only use the standard military mileage rate to work out your deductions.

Note that this deduction is only available to the active members of the US armed forces. The Tax Cuts and Jobs Act suspended any other job-related moving expenses from being tax-deductible. This rule will be in effect between December 31, 2017, and January 1, 2026.

How to Calculate Mileage Reimbursement

In Gattuso v. Harte-Hanks Shoppers, the California Supreme Court clarified the three methods to work out mileage reimbursement. These are:

1. The Actual Expense Method

This method is considered the most accurate in calculating mileage reimbursement. Here the employee keeps track of all their eligible expenses, which are then reimbursed by the employer separately.

Although accurate, this method can also be burdensome as it requires a precise tracking and documentation system. But with the help of a mileage tracking app such as GOFAR, keeping track of the eligible expenses is a lot easier.

2. The Mileage Reimbursement Method

This method also involves tracking business mileage.

To work out total the total compensation due, multiply the total mileage with the standard IRS rate (or other predetermined amount).

For instance, if the total business mileage is 1000 miles, then:

1000 miles x $0.56 (IRS Mileage Rate) = $560.00 due in reimbursement

As mentioned before, the IRS mileage rate is a recommendation. You are free to discuss and work out a more suitable rate with your employer.

3. The Lump Sum Method

A lump-sum payment is also known as a per diem, gas allowance, or car allowance.

The lump-sum payment is simply a fixed amount paid to the employee for all automobile expense reimbursement.

What is the Easiest Way to Keep Track of Your Mileage?

Traditionally, businesses relied on a manual method for business mileage tracking. Here, the employees would manually log all their business mileage and related expenses in a spreadsheet. This information then makes up part of their monthly expense reports.

However, this method of mileage tracking was rife with inefficiencies and mileage inflation. It also took up way too much time.

That is why modern companies are moving towards automated solutions like GOFAR.

GOFAR offers a mileage tracker that enables employees to track and report their mileage expenses while still complying with reimbursement policies. It also:

  • Offers accountable expense reporting
  • Provides for faster reimbursements
  • Eliminates reporting fraud
  • Is IRS compatible

Contact the GOFAR team today and find out how you can incorporate their tracker into your operations, and streamline your mileage reimbursement process.

Track Work Mileage With GOFAR

  • Log, calculate and export business expenses at the press of a button
  • No cancellation fees
  • Available on iOS and Android

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