Mileage reimbursement is not mandatory in the US (in most cases), however, the IRS issues a yearly Standard Mileage Rate for use by employees and employers in the following ways:
- The rate gives employees a rate to use when they claim mileage deduction at tax time.
- It gives employers a reasonable reimbursement rate based on current research.
- The rate informs employers of the amount employees kickback for minimum wage considerations.
The rate gives employees a chance to get compensated either through payment by the employer or as a deduction for business related mileage on their taxes. If you need to calculate employee mileage reimbursement, try our free calculator to figure out the cost.
Technically, employers can pay any mileage rate of their choosing (except in California), whether that be over or under the IRS standard. But if an employer pays less, employees can deduct the difference on their taxes.
Calculating Mileage 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 tax payer’s standard deduction.
Additionally, mileage can only be deducted if it exceeds 2% of the tax payer’s AGI (the adjusted gross income is lower than your gross income). So if you don’t drive this much, you should ask your employer to reimburse you instead (or find a new job).
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.
- If the employer reimburses the whole mileage rate, the taxpayer cannot deduct anything.
- If the employer reimburses less than the mileage rate, the taxpayer can deduct the difference.
How to Claim the Mileage 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.
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.com 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.
IMPORTANT NOTICE ABOUT MILEAGE TAX DEDUCTIONS
The Tax Cuts and Jobs Act of 2017 eliminated certain tax deductions. This act unfortunately includes mileage tax deductions. You may only claim mileage tax expenses if you are a business owner or if you are self-employed.
Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A. Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2% floor.
However, certain taxpayers may still deduct unreimbursed employee travel expenses, this includes Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.IRS