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Should You Pay More Or Less Than the Standard Mileage Rate

More money, less money

The IRS Standard Mileage Rate is the rate provided by the IRS for mileage reimbursement for business use of  a personal vehicle. In 2017, the rate is 53.5 cents per mile. The rate is a guideline based on average gas prices and average wear and tear on a vehicle (gas reimbursement is a part of this rate).

Some people want to know if they can reimburse less than the standard rate. The answer is yes. Others want to know if they can reimburse more. The answer is also yes.


The IRS sets the rate for two reasons:

  1. To give employers a fair rate for paying back employees when they drive their own personal vehicles for work.
  2. To give employees a rate which they can use to deduct mileage on their taxes if the employer doesn’t reimburse or doesn’t reimburse the full amount.

Reasons You Might Want to Reimburse Less Than the IRS Rate

The IRS rate is based on average gas prices, average wear and tear on a vehicle, and the average costs associated with that repair. Obviously, these prices will be a little different in different parts of the country. Just about everything is more expensive in New York and California than it is in Kansas so there is room for adjustment on the part of the employer.

There may be any number of reasons an employer might have for adjusting the rate. Here are just a few:

Lower gas and repair costs

In the West and North-East, for example, gas prices are the highest. In the South (minus Florida) and parts of the Midwest gas prices are the lowest. Take a look at Gas Buddy to see a color coded map of the gas prices across the US. Prices of labor for car repair also varies by region.

It would be no surprise if an employer in Mesquite, Texas didn’t want to reimburse as much as an employer from San Jose, California did. It doesn’t cost as much to fill the tank and it doesn’t cost as much to get the brakes replaced.

Employee drives a fuel efficient car

If the employee drives a super fuel-efficient car, like a Prius or even great new compact car, then filling up the tank is going to happen less frequently than if the employee were driving a 1997 Ford Explorer. Of course, the employee will be paying for that gas savings in the form of a higher monthly payment, so maybe it all evens out in the end.

Employee leases a car

Another reason an employer might decide to give an employee less than the average mileage rate could be because the employee is leasing the vehicle he uses for business trips. In the two years that the employee leases that car, he probably wouldn’t do anything more to it than get the oil changed.

Example:

If the employee were in Denver, Colorado, where gas prices have been averaging about $3.00 per gallon, he was leasing a new Chevrolet Sonic Eco which gets 40 miles to the gallon, and he was only going to get an oil change every 5000 miles, then the costs of driving 100 miles a week for work would be:

  • $375 in gas after 50 weeks (He only needs 2.5 gallons of gas per week. That amounts to $7.50 per week. Take this times 50 weeks and you get $375.)
  • $25 oil change after 5000 miles (once – for work – in 50 weeks)

The employee only has to spend $400 on business driving expenses for the whole year.

If the employer were to reimburse at the full IRS rate, he would be giving the employee $2,700 (based on the 2016 rate of 54 cents per mile). This is quite a bit more than the employee needs to be reimbursed – unless the employer just wants to help with the car payment. Now, reimbursing at the IRS rate is fine, but may not be necessary in this scenario.

The good news for the employee is that if his employer does decide to reimburse less than the full rate, he can deduct the rest on his taxes, regardless of how awesome his leased car is.

Reasons You Might Want to Reimburse More

Not everyone can afford to drive such a great car for work. Most delivery drivers have old cars and sales people who drive their own vehicles don’t always have the nicest cars either. Short of leasing, it’s hard to see why anyone would want to beat up their own car for their job. It’s costly and annoying to have to take your car to the shop for one problem after the other.

Employee drives an old SUV

Most employees drive clunkers for work and so their repair and gas needs are going to be on the higher end. The employee who lives in San Jose, where gas has been averaging about $3.5, and drives the 1997 Ford Explorer gets about 17 miles per gallon. If he drives 100 miles per week then he’ll need $1029 in gas after 50 weeks. That’s quite a difference from Mr. Fuel efficient! Chances are he’s also going to need new shocks and who knows what else in that year. He could easily need $1000 at any given moment for a repair, maybe twice in a year. If this were the case, the employer might want to reimburse slightly more than the average rate.

Employer gives a set “mileage allowance”

The employer may not want to calculate his mileage payments based on the actual number of miles the employee drove. He may not want to do any calculations at all. This is fine as long as he comes up with a fair number that the employee is happy with. If the employer gives the employee $50 each week for whatever he needs for his vehicle and he sometimes drives a lot and sometimes a little, it might all even out, it might end up being less, and it might end up being more than the average rate would account for.

It’s important to know, however, that the IRS counts excess mileage reimbursement as wages and so the employee would need to claim that excess on his taxes.

Another important thing to know is that employees need to keep mileage records if they are either receiving payments from their employers or if they plan to deduct the mileage on their taxes.

Mileage Reimbursement and Employee Retention

An employer can choose to reimburse employees less or not at all, although this may not be a great retention strategy! Not reimbursing employees for mileage can make them feel undervalued.

The last thing you want is an unhappy sales person. Not only will they not be effective at gaining new customers and closing deals but they may spread a bad word about the company while they’re out on business.

Likewise, you’re not going to want an unhappy delivery driver either, one who picks up or drops off orders and is in charge of stock. Unhappy employees don’t take care of business very well so it’s better to make employees happy.

But remember, you can claim your own business expenses on your taxes so you aren’t seeing a total loss on the payments to your employees.

And lastly, it is actually pretty common for employers to reimburse their employees for mileage. A BLR Survey found that 73% of respondents (144 in total) reimbursed employees the max IRS rate.

 

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28 Comments

  1. Joni Rogers
    Joni Rogers June 21, 2016

    I work for a non profit that pays 54 cents per mile. When I checked the state website it was higher. My company pays me from home to a site and back, for mileage. I was recently told we might get a stipend instead of cost per mile. Yikes! I live far from my sites and the mile helps with gas and maintenance. What are the benefits to me? I am not happy about this news.

    How can I respectfully articulate my concerns?

    • Timesheets.com
      Timesheets.com June 28, 2016

      Hi Joni. Is hard to say without knowing your distance to the sites and what the stipend will be. If your state’s mileage rate is higher than the Fed’s mileage rate, it may benefit you since you’ve been getting the Fed’s rate. If it were me, I would start by asking some questions and informing HR that you live quite far and want to know how this change will affect your overall reimbursement. I wish you luck and feel free to come back and let us know how it goes!

  2. robert timpane
    robert timpane November 5, 2016

    i work for an employer that makes us pay for gas that we use in their vehicles it comes out of the pay check.

    • Peggy Emch
      Peggy Emch November 7, 2016

      If your employer doesn’t reimburse you for mileage expenses, which includes gas, then you may be able to deduct it on your taxes.

  3. Kathleen Gibson
    Kathleen Gibson February 16, 2017

    My husband uses his truck almost exclusively for business. He is not reimbursed for mileage by the company. Fuel, tolls, etc are paid with company card. Do we need to reduce the mileage deduction by the amount the company pays for fuel, tolls, etc?

    • Steve Korn
      Steve Korn December 15, 2017

      Kathleen, no. Those items are separate and outside the standard IRS rates.

      He may deduct the standard IRS rate for use of his truck, or deduct actual costs. Actual costs will likely be higher, but requires better record keeping. IRS scrutinizes these deductions so keep good contemporaneous records of actual spend and actual use to separate personal use (not deductible). You’ll be fine with good records.

    • Steve Korn
      Steve Korn December 15, 2017

      I missed important detail. Tolls and parking etc are separate, but gas is part of IRS standard rate, so yes to be clean i would subtract.

      That’s an odd policy–partial reimbursement for gas. In operating a car, gas is the 2nd biggest expense of a car after depreciation. Might even be 3rd biggest expense in an older car/truck with more maintenance costs, or after insurance with male teenage driver.

      Good luck

  4. The Osprey
    The Osprey March 24, 2017

    Don’t employers claim employee’s mileage for their own tax benefits?

    • Steve Korn
      Steve Korn December 15, 2017

      Reimbursement to employees is cost of doing business, so of course it is a deduction from revenue to compute net profit–the basis of federal and state income taxes.

      There is no “benefit”. It is a cost of business.
      Steve

  5. Magical Cajun
    Magical Cajun April 5, 2017

    Employers can only deduct the amount of gas expense they pay for. If they pay .35 cents a mile to the sales team for mileage, the sales team can deduct the remaining amount allowed by the IRS.

  6. Curious George
    Curious George May 9, 2017

    Can my employer charge the customer a per mile rate but pay me less than that rate per mile to drive there. Also this is in California.

    • Peggy Emch
      Peggy Emch May 9, 2017

      I am not an expert on the rules for California specifically but it likely that it’s fine. To be sure, you can check with a lawyer.

  7. Jennifer Taylor
    Jennifer Taylor November 21, 2017

    Are there any H.R. legal guidelines regarding mileage reimbursement; specifically paying it to one employee or job description and not paying it for others? I work for a small non-profit with 5 “regular” employees and 1 new grant-funded, paid intern. 3 of the employees and the intern all routinely work “in the field”. The employees’ wagest are much higher than the part-time hourly intern. Is it permissable / legal to pay the intern for mileage and not the others? Thank you.

    • Peggy Emch
      Peggy Emch December 4, 2017

      Hi Jennifer,

      I would suggest checking your state’s laws to be sure but to my knowledge it should be fine to reimburse for some and not others as long as it’s not discriminatory.

  8. Steve Korn
    Steve Korn December 15, 2017

    Many fellow employees will rent a car when they need one for business to avoid putting excess wear and tear on personal car, especially leased cars with mileage limits. Car’s I’ve owned all cost about $1/mile to run, all costs included–both fixed and variable costs combined. I’d rather not wear out my car for work, and so will limit its use when the mileage isn’t significant.

    Of course rental car costs the employer much more than the IRS legal rate.

  9. Melanie
    Melanie December 15, 2017

    An employee wrecked the company vehicle and had to drive their own 480 miles. They used the company gas card during that time. Now, they have turned in a mileage reimbursement sheet. If they used company gas card for fuel, what would the cost of wear and tear be on the vehicle.

    • Peggy Emch
      Peggy Emch December 15, 2017

      Hi Melanie,

      The mileage reimbursement would have been 480*.54 = $259.20. Just subtract whatever he used from the gas card from that amount and that’s what you would owe him. Because, technically, you already partially paid him.

  10. Smarty Pants
    Smarty Pants January 16, 2018

    Corporate America sucks. They would want us to work free if they could get away with it. ….which its almost coming to that. Gets worst every year in the US…..

  11. Pam burke
    Pam burke January 27, 2018

    What is the rebursement for miles from ks to ok city. 53.4 ? Co pays expenses acct says Miles would be better then gas. However gas now is 245 per gallon still after I figured out miles per gal. Miles seems to be a better deal.

  12. Kendall
    Kendall January 30, 2018

    You aren’t taking into consideration that this is only a deduction, which means that if you are in the 40% tax bracket, you are only getting back $.21 from the government. IRS only takes the .54 off of your income, not off of your taxes. So if your employer is giving you .38, and it gets taxed at 40%, you would be back at over .22, which is better than the .21 you just got returned from the government.

  13. Brian
    Brian February 26, 2018

    My employer is giving me a car allowance of $600.00 pretax in my paycheck. Do I deduct this amount when I file my taxes as non income?

  14. Mark
    Mark April 11, 2018

    I drive an average of 2000 miles per month using my personal car and receive 10 cents less than the IRS average reimbursement. That’s $200.00 less per month or $2400.00 per year. I feel like I’m unfairly treated. There is no car allowance. What should I do?

  15. John
    John May 24, 2018

    My employer pays a car allowance each month of 400$ and then only pays .14 a mile. Am I able to claim on my taxes or does the allowance cancel out the low per mile rate? I usually drive about 2000 miles a month

  16. Pat
    Pat July 13, 2018

    I’m a caregiver and run errands on average 80 miles a week for my client using my car and gas. My agency I work for charges him 75 c a mile but Barely reimburse me for half of that. I find that to be extremely unfair and do not understand how that could be legal.

    • Peggy Emch
      Peggy Emch July 19, 2018

      Talk to a lawyer about it. That does sound unfair.

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