Unless you want to give money away to the IRS, expense reimbursements shouldn’t be taxed. When employees pay for expenses out of their pocket, they use their taxed income and so taxing the reimbursements for those expenses is like double taxing that money. You don’t want to do that. Your employees definitely don’t want you to do that.
Category: Mileage & Expenses
You’ve seen the mileage reimbursement rate that the IRS publishes each January but do you know where the number comes from? Many people think the rate is based on gas prices alone but if that were the case, mileage reimbursement would be much lower than the published rate. If your car gets 27 miles to the gallon, for example, then rather than reimbursing 54 cents per mile, you’d be reimbursing more like 10 cents!
Actually, the reimbursement rate per mile is figured from various factors associated with owning, driving, and maintaining a vehicle.
If you reimburse your employees for mileage, there are some things you should know about your role in the unlikely event that your employee is involved in an auto accident.
When employees hop in their cars to run errands for work, employers might feel released of liability – out of sight, out of mind, right? Employees are in their own cars, for which they (better) have their own insurance. If they cause an accident, that’s their problem, right? Possibly, but sometimes, the liability can fall on the employer.
“If I am reimbursing for mileage, do I still have to pay an hourly rate for travel time?” Or vise versa.
The answer is simple. Allow me to explain.
If you want to deduct mileage expenses on your taxes, you need to keep track of your mileage the right way. The IRS states that mileage records must consist of:
- Mileage driven
- Dates of business trips
- Location driven
There is no Federal law mandating the reimbursement of mileage expenses but the IRS does set a rate that employers and employees can use as a guide. This leaves a little room for confusion though. How much should an employer reimburse? While employers may have valid reasons for reimbursing more or less, I would argue that it’s better to reimburse the full rate. Here’s why:
The question of whether employers must reimburse their employees for work related expenses comes up a lot. The answer is not cut and dry, however. The FLSA does not require employers to reimburse for mileage or other expenses but some states, such as California, do. It is the responsibility of the employer to be familiar with state laws.
The IRS Standard Mileage rate changes each year based on gas prices and other factors. This year, the reimbursement rate has lowered. The rate for business miles driven – i.e. employees driving their own vehicles for work purposes – has dropped 3 and a half cents. For someone who drives 100 miles in a week for work, this is a difference of three and a half dollars.
The Fair Labor Standards Act does not require that employers reimburse for mileage. This may seem a little strange – if an employee makes business-related purchases, then the business should pay for them, right? Well, the FLSA does not require it. When employees pay for work related expenses (as long as those expenses don’t bring the employee’s wage under the minimum) then the employer has no obligation to pay them back.
Except, that is, in California.
Travel and entertainment costs represent a large chunk of the budget for most businesses. In fact, they are the second largest business expense, just behind payroll.
You would think that businesses would take the management of these expenses very seriously, given that they spend so much money on them but, surprisingly, not all of them do. Most businesses still manage their reimbursable expenses using antiquated methods like pen and paper or spreadsheets.
Continue reading Online Expense Tracking Is a Must for Businesses
Last year the IRS mileage rate went down slightly, despite escalating gas prices. This year the rate went up slightly, despite decreasing gas prices.
You would think, with gas prices so low, that the mileage reimbursement rate wouldn’t go up, but instead would go down, maybe even way down. But it didn’t. It went up one and a half cents per mile to 57.5 cents on January 1st, 2015.
Continue reading Gas Prices Down, Mileage Rate Up in 2015