IRS Mileage Reimbursement Calculation

IRS Mileage Reimbursement Calculation
A digital odometer on a car's dashboard.

Mileage Reimbursement Basics

The IRS allows businesses to reimburse employees and other company representatives for business travel. If the business follows IRS guidelines, reimbursement is as an expense for the company and a nontaxable payment for the employee. To be a valid expense, the company must maintain records of the expense and verify it was used for work. To be a nontaxable payment to the employee, the employee must report the expenses in a timely manner and return any excess reimbursements she receives.

IRS Standard Mileage Rate

The simplest mileage reimbursement method for a business is the IRS standard mileage rate. Under this plan, the employee and employer must only keep track of miles driven for business rather than documenting actual expenses. This rate is updated periodically by the IRS to reflect the average gas, maintenance, repairs, insurance, licenses, registration and depreciation expense incurred per mile driven.

Actual Expenses

Instead of reimbursing at the standard mileage rate, a business may choose to reimburse actual vehicle expenses incurred. This is more detail-intensive compared to the IRS standard mileage rate, but may result in a higher reimbursement if the employee drives a luxury car or purchases expensive insurance. Under this method, the employee calculates the total amount of gas, car maintenance, car repairs, depreciation, license fees, registration fees and car insurance expense for the year. Then, he prorates the expense based on the amount of miles driven for business. For example, say that an employee drove his car a total of 10,000 miles during the year and 5,000 of those miles were for business. If he incurred a total of $10,000 in vehicle expenses during the year, his employer may reimburse him for $5,000 as long as he can document the expenses.

Other Methods

The IRS allows businesses to reimburse mileage expense in whatever way they choose, as long as they retain documentation. Some employers may choose to only reimburse the actual amount of gas purchased on business trips. Others may not choose to reimburse mileage expense at all. If an employer only reimburses a portion of mileage expenses, or no mileage expense at all, the employee may write off the unreimbursed portion as an itemized deduction on Form 2106, Employee Business Expenses.