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Gas Costs Are Covered In Mileage Reimbursement

The IRS standard mileage rate is intended to cover all the costs associated with operating a vehicle for business purposes. This includes wear and tear on the car as well as gas expenses.

The question that many employers and employees have is whether gas costs are covered in the “mileage rate”. The answer is, yes.

If an employer reimburses mileage, he should not also reimburse for gas or for times when the car is in the shop. Mileage reimbursement is intended to cover all of those expenses.

Of course, an employer can reimburse whatever he or she chooses and if this just covers the cost of gas, that is fine (in most states). If an employer does not reimburse the full IRS rate, then employees can deduct that portion on their taxes. Keep in mind, though, that mileage can only be deducted if it exceeds 2% of the employee’s AGI. So if the employee isn’t driving much, it’s probably best that the employer reimburses.

How the IRS Sets the Rate and What It Means

The IRS mileage reimbursement rate for 2017 is 53.5 cents per mile. The IRS mileage rate is based on Runzheimer‘s research:

“The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile.”

If you break down the mileage rate, it makes a lot of sense and appears to be very fair. Seeing the rate used in a real world example helps to understand why the rate was chosen and how to use the funds to cover business vehicle costs.

Example: Break down of these expenses over the course of one year

Let’s say a sales employee drives 100 miles a day for business purposes and her car gets 29 miles per gallon. Then each day she will need roughly 3 and a half gallons of gas per day to cover the business trips. The national average for regular gasoline is currently $3.52 (March 2014). So this means that the sales lady will be spending about $12.30 per day on gasoline. Based on the 2014 IRS mileage rate of 56 cents per mile, the sales lady will be getting $56 per day for business mileage expenses – quite a bit more than her gas costs! After she spends $12.30 on gas, she will have $43.70 remaining.

Let’s say she puts this into a savings account, rather than spending it with her paycheck. If she works five days per week and drive 100 miles each day, then every week she will be putting $218.50 away for car expenses. And every month she is putting $947 away. With just one month’s mileage reimbursement, she can afford to put gas in the car and replace her fuel pump and timing belt. The next month she may need windshield wipers, an oil change, a new headlight, and a serpentine belt in addition to gasoline. No problem. Her mileage reimbursement has her covered.

Now, this might be a typical scenario for local sales people driving a newer car with good gas mileage. Pizza delivery drivers may drive about this much but don’t usually have nice cars with great gas mileage. Some types of drivers drive a lot more than this but most probably a little less. If you want to calculate the gas and repairs amounts for yourself then plug in the numbers like this:

Find: (number of miles driven per day)/(miles per gallon your car gets)

Multiply that by the gas cost in your area. Multiply this by how many days you work per day.

That gives you your weekly gas cost. Now multiply the IRS rate of 56 cents per mile by how many miles you drive in a week. This is your total reimbursement.

Finally, take the reimbursement minus the gas cost. This gives you your excess that you can use for repairs. I hope it’s enough to change your breaks!

Save That Mileage Reimbursement!

You can see that mileage reimbursement should cover or even exceed a normal car’s wear and tear. But this money must be saved and not spent if it is to come in handy for the employee’s car. Spending mileage reimbursement is too easy for an employee to do when it comes along with the regular paycheck, but if a business car is to be easily maintained, it should instead be saved.

Should You Calculate Costs Manually or Use the IRS Rate?

The IRS says this about calculating mileage expenses:

“Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.”

As you can see, though, from the above scenario, the standard mileage rate is more than sufficient in most cases. If you happen to drive a lot in a car getting only 17 to 18 miles per gallon, you might want to consider calculating costs manually. It can’t hurt to save receipts because it will show you clearly whether your delivery driving or sales job is worth it in the end.

Tracking Mileage Easily

No matter how much an employer decides to reimburse her employees, she can easily track the mileage with Timesheets.com. The employee simply adds the miles to his expense sheet and the system calculates the total dollars to be paid based on the mileage amount that the administrator sets up.

 

Make mileage reimbursements easy!

Try Timesheets.com free!

12 Comments

  1. Shelly Brazinski
    Shelly Brazinski August 8, 2017

    What if a volunteer loans her car for a church trip and a different volunteer puts gas in the same car? Do I reimburse the gas for one and mileage for the other?

    • Peggy Emch
      Peggy Emch August 8, 2017

      You could. Maybe reimburse one the gas and the other mileage less the gas.

      • Shelly Brazinski
        Shelly Brazinski August 9, 2017

        Thank you for your help. I think that sounds fair.

  2. Max Landrotti
    Max Landrotti September 1, 2017

    This calculation is very UNFAIR regardless of whether it was implemented by the IRS .
    1) For example, in the above scenario , the sales girl who drives a 100 miles per day x 20 days per month =2000 miles x mo or 24,000 x yr. 72,000 miles over 3 years. A typical 3 yr lease only allows 12,000 per year or 36,000 miles at lease termination. At the end of the year lease, she will owe mileage overages of 36,000 miles multiplied by anywhere from 25 to 60 cents per mile.
    2) the above scenario states the sales girl drives a car which gets 29 miles per gallon which is a very high number considering few cars get that mileage in combined city/hwy driving . Well what if the sales girl does not commute in Kansas and instead drives through dense metropolitan traffic areas such as downtown NYC, New Jersey, Los Angeles, Chicago or Philadelphia, her vehicle may get 4 to 8 miles per gallon while stuck in traffic.
    3) Gas should be reimbursed separately for people driving in these areas. Not to mention car insurance premiums can cost thousands of dollars per year more than in rural areas. For example the national average auto insurance premium is 536.00 per year, while NY can average 1,200.00 to 2,500.00 per year.
    4) to fairly determine what a company should reimburse an employee would be for that company to calculate what it would cost them to own or lease a vehicle and all its associated costs of operation. At 53.5 cents a mile, the employee is footing a good portion of the auto expenses which is coming out of his earnings. The employer saves a considerable amount over owning and leasing a vehicle, which in my opinion is completely unfair.

    • Karri
      Karri November 6, 2017

      Totally agree. Not to mention the cost of depreciation.

    • destiny4me
      destiny4me November 7, 2017

      The employer has the option to reimburse or not reimburse their employees for mileage or for actual vehicle expenses, if the employer doesn’t reimburse their employees for either then the employee can claim either (not both) the mileage or the actual vehicle expenses as a deduction on their tax return, the employee will need to keep good records which includes copies of the actual receipts for gas, vehicle maintenance and/or repairs, oil changes, insurance, etc. and for mileage a detailed mileage log that is documented the day of or shortly after the miles were put on the vehicle including proof of the miles on the vehicle at the beginning of the tax year and ending of the tax year (copies of oil change invoices, vehicle service records, etc. showing the miles on the odometer) the employee can then decide which expense would be more beneficial for them, either the mileage or the actual vehicle expenses. A lot of times it is more beneficial to claim the actual vehicle expenses then it would to claim the mileage but until you add both expenses up you wont be able to determine which is the better way to go. It would be unfair if the IRS only allowed a mileage deduction because as you stated sometimes it cost more for actual vehicle expenses than the 53.5 cents a mile when you’re not racking up the miles on your vehicle. .

  3. grace
    grace January 17, 2018

    how often is the mileage reimbursement should be submitted? I have mileage reimbursements from 6 months ago?

    • Peggy Emch
      Peggy Emch January 18, 2018

      Companies have different policies on that.

  4. Bella's Mom
    Bella's Mom May 24, 2018

    Hello, thank you for all the information and food for thought. ..

    My situation is a bit different from the example given:

    I may travel from 100 to 225 miles a day for work; my schedule will vary from 3 – 4 days a week, and from 5.5 to 8 hrs per day.

    This schedule is also true of my co-workers.

    My employer used to pay a set rate per mile driven for work – $0.25 per mile.

    Now, they are going to use the following formula to determine “fuel reimbursement”:

    # of miles driven in a pay period
    Divided by 15 (we’re paid semi-monthly)
    Multiplied by their determination of prevailing gas price per gallon (now $3.30/gallon)

    How can this work using my schedule as detailed above?

    Csn you (or anyone) suggest an alternate formula that accommodates a varied schedule during the pay period, won’t bankrupt the employer, yet is still fair to the employee?

    Thank you!

  5. […] Gas costs are covered in the rate the IRS sets for mileage reimbursement so you don’t have to add up your employee’s gas receipts. Just pay employees based on their mileage. You can either map their route on Google maps and use that mileage as your guide or use the mileage your employee gives you. Employees need to be keeping records of their mileage driven for work anyway in a log book or mileage recording app. […]

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