Mileage reimbursement is a complicated process that requires a lot of diligence from company owners and employees alike. Keeping a detailed mileage log takes a lot of work since it needs to be presentable to the IRS in case of an audit.
There’s a lot to know about mileage reimbursement – let’s take a closer look at what exactly it is and how it works.
What is mileage reimbursement?
Whenever one of your employees uses their own vehicle for business purposes, like visiting clients or delivering packages, you will have to reimburse them. Your employees’ cars require fuel (which can be very expensive with the rising gas prices), maintenance, and will experience vehicle depreciation with time – if you want to receive tax deductions for reimbursement, you’ll need to do it properly and keep a tight mileage log.
While there are no federal requirements for mileage reimbursement, state requirements may still apply in the U.S. in some places. If the costs of using a vehicle on their own reduce your employees’ net wages below the minimum, you will also have to reimburse them.
The types and rules of mileage reimbursement
There are three types of mileage reimbursement methods, most usually used by employers:
- Car Allowance – a simple, flat-rate periodic payment, usually paid monthly. This approach pays out a steady fee to each employee who uses their own vehicle for work, but doesn’t take into consideration how much they actually move around.
- A cost-per-mile approach can be used to reimburse employees based on how many miles they drive, using the standard mileage rate. This approach is more accurate, but still doesn’t include fixed costs like insurance.
- The FAVR approach combines fixed costs and variable costs, accounting for every variable based on geographical data. It’s the fairest and most accurate way of reimbursing your employees, but also the most cost-effective for the employer.
Remember to check your local state regulations relevant to mileage reimbursement – they can vary a lot!
Track your mileage effectively with MileageWise
Both the cost-per-mile and FAVR approach require you to keep a mileage log if you want to receive tax deductions for mileage reimbursements. Why do it yourself when you can have a simple app do all of that for you?
MileageWise is an easy to use, feature-packed mileage logging app that can createa 100% IRS approved mileage log. Save $12,000 in mileage tax deductions per year per vehicle using 3 automatic trip tracking modes and AI-driven past mileage recreation technology. You can try out MileageWise for free with a 14-day trial period!