You don’t actually have to reimburse your employees for mileage expenses according to federal regulations. Of course, if you don’t, employees may not want to drive anywhere for you, because it’s expensive and it causes wear and tear on the vehicle. But if you decide, for whatever reason, that you don’t want to reimburse your employees for mileage, then rest assured, you won’t be held liable by Department of Labor for not reimbursing. (Some states have their own laws and do require reimbursement.)
The IRS issues a mileage reimbursement rate each year both as a guide to a fair rate, and as the specific amount that the IRS reimburses employees on their taxes if employers don’t reimburse on an employee’s pay check.
It would be a pretty bad deal for the employee if they just had to drive their cars around on their own dime. But they don’t. Even if employers choose not to reimburse employees, or if employers choose to reimburse less than the IRS rate, employees can still get the reimbursement on their taxes.
Reasons to Pay Mileage:
- Businesses can deduct the mileage and vehicle maintenance reimbursements on their taxes.
- Reimbursing employees for mileage is a perk that may help employers attract and retain talented and trust worthy employees.
- It’s compassionate. The tax return at the beginning of the year isn’t going to help employees fill their gas tanks right now! If your employees make a low wage, each penny really matters and they probably need the help with gas – right now.
Reasons Not To Pay Mileage:
- If the employee logs a lot of miles, it might be better for them to take the deduction at the end of the year. This means that the mileage reimbursement (gas money and repairs) will ultimately be tax free. This isn’t the best scenario for the majority of employees, but a well paid salesperson might opt for this path rather than filling out expense reports every week.
- Neither party may want to bother with it at all if miles are very low. If reimbursement takes place at all, the IRS’s rules must be followed. This means keeping meticulous records.