What sometimes confuses people about this is that the IRS sets a mileage rate, but the FlSA does not mandate reimbursement by the employer. Many employers think they have to reimburse mileage but, in reality, they probably don’t. Employers are free to reimburse more or less than the IRS rate as long the State they’re in doesn’t have its own requirements.
The IRS rate is a guideline for employers and a tax deduction opportunity for employees.
IRS Standard Mileage Rate for 2016
The standard mileage rate decreased this year by 3.5 cents. The new IRS rate is 54 cents per mile.
A company can reimburse its employees whatever it wants – from zero cents per mile to over the IRS maximum – as far as the Federal government is concerned. (Employers should check for laws in their state. Some have them some don’t.)
Even if you don’t reimburse your employees, they can recover the costs on their taxes. Whatever amount an employer does not reimburse, employees can deduct on their taxes. If employers reimburse more, however, which is perfectly acceptable, employees have to claim this mileage excess as wages on their taxes.
Even still, employees don’t usually appreciate it when their employer doesn’t reimburse them on every paycheck. Gas costs and repairs are out of pocket expenses and getting paid back for those expenses only once a year (at tax time) may put a lot of employees in a tough spot.
While the Feds allow businesses to reimburse employees any rate of their own choosing, a BLR Survey found that 73% of respondents (144 in total) actually reimbursed employees the max IRS rate. What you do is your own choice. I’ve tried to help break down the pros and cons in this post.
Use Expense Sheets to Calculate Mileage Payments
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.
Even if your employer doesn’t have a Timesheets account, you can still log in as a freelancer for free and keep track of your mileage. Our software doesn’t turn on when it senses your smartphone moving over 25 miles an hour but it does give you a place to record your mileage and odometer readings as well as figure out what you should be getting back in cash based on the rate of your choosing.
How to Obtain the Miles
- Employees can write down their odometer readings and calculate the miles manually.
- Use Google Maps to see the miles the employee would drive to get from one point to another. You can set up the route to start at the office and then travel to multiple points.
- Get a smartphone app for mileage tracking and track the miles based on GPS.
Once you’ve got the miles, enter the value into your expense sheet and the system will calculate the reimbursement amount. You can pay this amount on the next pay day.