Most employers reimburse mileage expense under an accountable plan so employees won't be taxed on mileage reimbursements. However, if your employer does not have an accountable plan, any reimbursements will be considered taxable wages. If this is the case, employees can deduct the expense using Form 2106. Independent contractors who receive mileage reimbursements should clearly define the expense to clients so it's not included in taxable compensation.
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Your mileage reimbursement is not taxable as long as it was provided to you by an employer with an accountable plan. An accountable plan is one in which the employer verifies that all expenses are incurred for business and maintains documentation of the expense. If your employer has an accountable plan, all expense reimbursements will be excluded from your payment and won't be listed on your Form W-2. If your employer doesn't have an accountable plan, the mileage reimbursement will be listed along with other wages in box 1 of Form W-2.
Unreimbursed Employee Expenses
If your employer doesn't have an accountable plan, you do have the opportunity to write off the expense. Because any money for mileage was reported as wages, that means you weren't technically reimbursed for mileage expense. Employees who aren't reimbursed for expenses can list them as an itemized deduction on Form 2106. Your deduction is the difference between the mileage expense you incurred and what you were reimbursed. Miscellaneous expenses like employee business expenses are deductible only after they exceed 2 percent of your adjusted gross income.
Calculating Mileage Expense
If you do need to report mileage as an unreimbursed employee expense, you have two options in how to calculate it. The first option is to calculate actual expenses. That means you'll need to calculate the amount of gas, insurance, registration fees, car maintenance and depreciation that you incurred for business purposes. This can be a detailed process, so the IRS allows taxpayers to take a standard mileage rate in lieu of deducting actual expenses. For 2014, the IRS allows taxpayers a deduction of 56 cents per mile driven on business.
Reimbursements to Independent Contractors
Independent contractors may receive mileage reimbursements from clients when they travel for an assignment. If your client records this payment as an expense reimbursement, it will not appear as compensation on your annual Form 1099-MISC. However, if you don't clearly label this charge as an expense, your client might accidentally book it as part of your compensation and you'll pay taxes on it. To avoid this situation, keep records of what you've billed customers and contact your client if you see any discrepancies on your 1099.