The purpose of the IRS Standard Mileage Rate is not to impose a rate of payment by employer to employee, but to give the employee a guide for his or her deduction at tax time.
The rate offers compensation to the employee either through payment by the employer or as a deduction for business related mileage on a personal vehicle.
Technically, an employer can pay any mileage rate he sees fit (except in California), whether that be over or under the IRS standard. But if he doesn’t meet the IRS standard, the employee can deduct that amount on her taxes.
Calculating the Deductions
A taxpayer can deduct any business miles that were not fully reimbursed at the max IRS rate by the employer. The tax payer must itemize deductions in order to claim the deduction, otherwise the expenses are just a part of the standard deduction.
The standard mileage rate for 2017 is 53.5 cents/mile.
There are three possible scenarios for the employee at the end of the year:
- An employee can use the whole benefit if a company does not reimburse mileage at all. The taxpayer can deduct .54 of a dollar for every mile driven in his/her personal vehicle for business purposes (this does NOT include the commute to and from work!).
- If the employer reimburses the whole 53.5 cents per mile, the taxpayer cannot deduct anything.
- If the employer reimburses less than 53.5 cents per mile, the taxpayer can deduct the difference. For example, let’s say the business reimburses 30 cents/mile, then a taxpayer can deduct .14 of a dollar per mile on his yearly taxes.
Proper Procedure for Claiming the Deduction
An employee cannot just pull some number out of the clouds and call it her mileage deduction. Nor can she make a pretty good guess. Nor can she go to Google Maps and enter her route, multiply it by the number of times she made the drive that year, and write it on her deductions form. The IRS expects precise numbers. But you should know that already…
What you need to do is keep a log of your odometer readings each time you drive for work. This is the document that the IRS will demand if you are audited.
There are a couple of ways you can do this.
- Pencil and paper
- Smartphone apps
You can get a notebook and a pen and record it the old fashioned way. Or you can download an app onto your smartphone and let it track your mileage automatically. There are a lot of apps out there for this purpose but I found a few popular ones for both iPhone and Android and compiled a post to get you started, Mobile Apps For Tracking Mileage Readings.
Use Expense Sheets to Calculate Mileage
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.
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.