If you’re an employee or employer, you’re probably aware that a lot of things change in the beginning of each year. This year, for instance, we’ve already seen changes to the US overtime policy new salary history bans in Ohio, New York, and New Jersey, and changes to Form W-4. Of course, to keep us on our toes, the IRS has placed a new regulation upon us. On December 31st, 2019, the IRS released the new standard mileage rate for the year 2020. Their official notice explains the rules of the optional standard mileage rate within the next year. Taxpayers will use this rate when computing deductible costs when using a vehicle for business, charitable, medical, or moving expense purposes.
Calculating mileage reimbursement starts by knowing when you actually need to reimburse your employees. Although many employers think that they have to pay for mileage , the federal Government does not require you to reimburse employees. However, there are certain states that have regulations. California, for instance, requires employers to reimburse employees for any losses incurred while completing work duties.
The IRS sets the mileage reimbursement rate for employees who drive their own Privately Owned Vehicles (POV), but this rate is a guideline for employers and a tax deduction opportunity for employees. You can choose whether or not you want to pay your employees more or less than the IRS rate. Also, keep in mind that you have to follow your state’s reimbursement regulations as well. In Addition to that, under FLSA regulation, you must pay your employees the standard minimum wage. If their expenses lead them to an hourly rate below minimum wage, you will have to assist them with the cost.
The IRS has a guideline for reimbursable and non reimbursable expenses when an employee uses their own POV for business duties. Here are some reimbursable and non reimbursable expenses:
In the United States, expense reimbursement is only required in a couple of cases.
1. In the event an employment contract contains expense reimbursement, an employer is responsible for expense payments.
2. When employees pay for business related expenses, they are kicking back money to their employers. These kickbacks must be subtracted from an employee’s wages to accurately calculate minimum wage. If employees are not paid at least minimum wage, free and clear, the employer is in violation of the FLSA.
However, some states have their own laws surrounding expense reimbursement. Those states include: Illinois, California, Massachusetts, Montana, Pennsylvania, New York, Iowa, and the District of Columbia. Illinois was the newest addition this year.
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.
Federal law doesn’t mandate the reimbursement of mileage expenses. However, employers and employees can use the IRS mileage rate, which the IRS posts each year, as a guide for reimbursement.
While it is ultimately up the employer what to reimburse, it’s probably better to reimburse the the exact IRS mileage rate. Here’s why:
While federal law does not require employers to reimburse employee expenses and mileage, some states, such as California, do. Furthermore, federal law does require that employers pay minimum wage. When the cost of the expense causes the employee to drop below the minimum wage, the employer does have to reimburse mileage and expenses.
The federal government does not require that employers reimburse for mileage. When employees pay for work related expenses, the employer has no obligation to pay them back. (There are exceptions like when expenses cause employees to fall below minimum wage.)
Except, that is, in California. Mileage reimbursement in California is required.