Employee Mileage Reimbursement: A Guide to Rules and Rates

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You should reimburse employees for any clientele use of their personal vehicles. We show you how to calculate mileage reimbursement in this template. When you ask your employees to hop on a plane for work, they shouldn ’ t have to use their own money to get to the finish. precisely as you ’ vitamin d pay for an employee ’ s plane ticket, you should reimburse employees when they use their personal car for business. Employee mileage reimbursement is the elementary way to keep employees from shelling out their paychecks to cover business driving costs.

Overview: What is mileage reimbursement?

More common in the days of yore, businesses would issue company cars to salespeople and executives who often traveled by car for business meetings. The caller provided the cable car and paid for relate expenses such as gas, insurance, and maintenance. It ’ mho accustomed now for employees to use their personal vehicles for employment. Businesses can offset an employee ’ s car expenses with mileage reimbursement : Employees receive a set sum for every mile they drive for exploit. Businesses can besides reimburse employees based on the actual costs incurred for business drive, but applying a mileage reimbursement rate is much bare. normally, reimbursing your employees for using their personal cars is not a federal requirement. placid, it ’ s a common drill your business should adopt to keep your employees from opening their wallets to fund business expenses. mileage reimbursement besides applies to freelance people. You can take a tax write-off for the business use of your personal cable car on Schedule C of IRS Form 1040. The IRS sets a standard mileage reimbursement rate. For 2020, the federal mileage rate is $ 0.575 cents per nautical mile. Reimbursements based on the union mileage pace are n’t considered income, making them nontaxable to your employees. Businesses can deduct those costs on their business taxes. A best practice is to use the IRS mileage reimbursement rate, but you ’ ra exempt to choose a higher or lower rate. When you reimburse employees at a higher rate, the extra sum is counted as gross wages and is subject to payroll taxes .

What qualifies for mileage reimbursement?

Your occupation can deduct mileage reimbursement costs for clientele trips that exclude an employee ’ mho even commute. Qualified mileage reimbursement costs include :

  • Business trips
  • Off-site meetings with clients and prospective clients
  • Running errands for business supplies
  • Deliveries

The mileage rate helps cover costs like natural gas, vegetable oil changes, alimony, and insurance. Tolls and park expenses are not designed to be included in the mileage reimbursement rate, so employers should reimburse those expenses at their actual cost. When you use the IRS mileage rate for these costs, they ’ re not taxable to your employees and are deductible for your commercial enterprise. If you choose a higher rate, both you and your employees pay payroll taxes on the excess measure. You can reimburse your employees for commuting costs, but that ’ s a benefits government decisiveness because employer-paid commuter costs are considered a taxable fringe benefit .

How to calculate standard mileage reimbursement

Employers should create a mileage reimbursement policy that outlines :

  • What trips are subject to reimbursement
  • The reimbursement rate
  • How to calculate the number of miles
  • How to record the mileage reimbursement
  • How reimbursements will be paid

Create an expense report that mechanically calculates the standard mileage reimbursement based on your policy. You can use a Microsoft Excel template as a originate point. Ask your employees to submit a phonograph record that supports their expense report. Methods of calculating mileage admit :

  • Taking photos of the car’s odometer before and after each business trip
  • Using an online tool like Google Maps

Let ’ s forecast a mileage reimbursement for Archie, an employee of Artie ’ south Architecture. Archie drove his personal car to visit a node site last week and is seeking reimbursement for the miles tug. Artie ’ s policy states :

  • Client sites qualify for mileage reimbursement
  • The reimbursement rate is the IRS standard rate of $0.575 cents per mile
  • Compare the car’s odometer reading before and after the trip to calculate miles driven
  • Employees must fill out an expense report for mileage reimbursement within 10 business days of the trip
  • Employees receive reimbursement by direct deposit within five business days after submission

Before and after each business stumble, Archie takes a video of his odometer to keep lead of his mileage. After the trip, Archie fills out an expense report using the employer-provided template that mechanically calculates his reimbursement according to the 2020 IRS mileage rate .An Excel spreadsheet showing an expense report for travel expenses. As an employer, constantly check expense report calculations to make indisputable the Excel formulas are working correctly. The business owner, Artie, should find the difference between the odometer readings and multiply it by the standard mileage reimbursement rate. The difference for the first tripper is 171 miles ( 10,456 – 10,285 ). Multiplied by $ 0.575 cents, the result is $ 98.33, which matches the expense report output. Artie should repeat the action for the irregular trip. The sum reimbursement come comes out to $ 196.08. Payroll software much has a feature that allows employers to send reimbursements with lead down payment. Since standard mileage reimbursement international relations and security network ’ metric ton taxable, treat these reimbursements individually from payroll process. Don ’ metric ton add the reimbursement to your employee ’ mho following paycheck because you might incidentally subject the reimbursement to unnecessary payroll deductions. If you reimburse mileage in employee paychecks, regularly reconcile your payroll to catch mistakes .

Do you have to pay employees for business driving expenses?

If you live in certain states or pay employees minimum wage, you might have to reimburse them for clientele drive expenses. California and Massachusetts require mileage reimbursement. Check your express ’ s labor department web site for the most up-to-date regulations. You can ’ t ask employees earning at or near minimal engage to pay for their business drive expenses. The Fair Labor Standards Act ( FLSA ) kickback rule says if an employee ’ s drive expenses cause them to earn less than minimal engage, the employer must reimburse them. When an employee earns at or near minimal engage, any unreimbursed expense triggers the FLSA kickback misdemeanor. The FLSA kickback rule comes up normally for food pitch drivers who use their own cars. Employers must track the travel of employees earning near minimal wage to ensure they ’ rhenium not underpay. For example, say you own a pizza workshop in Connecticut and pay your delivery drivers $ 12 per hour, the minimum engage. The drivers use their own cars to make deliveries. If your employees have to pay for gas used for deliveries, they ’ re technically using their earnings to benefit the company. The FLSA says those costs can not cause an employee ’ s hourly pace to fall below minimum engage. Say a delivery person works for four hours, earning $ 48 in gross wages ( $ 12 hourly rate x 4 hours ).

Gross wages (rate * hours)

Gas expense during shift

New gross wages (gross wages – gas)

Net hourly rate (new gross wages / hours)

$48

$25

$23

$5.75

The driver ’ s new hourly rate is $ 5.75 after accounting for natural gas expenses. The employer must reimburse the employee for the $ 25 gasoline expense .

Miles and miles of reimbursement

While it ’ s not federally required, you should reimburse your employees for the business use of their personal vehicles. When you use the IRS mileage rate, the reimbursement is not taxable to your employees, and it ’ s a tax deduction for your modest clientele .

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Category : Finance

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