Company vehicles aren’t always available, particularly for smaller and growing businesses. This can lead to employees using their own cars for work-related travel. Whether visiting clients, heading to the airport, or making deliveries, personal vehicle usage may qualify employees for mileage reimbursement. The IRS provides a 2023 reimbursement rate, but there’s more to consider.
Some business leaders believe that since the IRS sets the reimbursement rate, federal law requires employee compensation for vehicle use. This is only true in certain cases, and some state laws may have additional requirements. However, reimbursing employees for vehicle wear and tear can be a good business practice, even when not mandated. Here’s an overview of the 2023 mileage reimbursement guidelines.
What Is Mileage Reimbursement?
Mileage reimbursement is the practice of compensating employees for expenses related to using their personal vehicles for company business. This is typically calculated on a per-mile basis and is intended to cover fuel costs, vehicle maintenance, and depreciation.
It’s important to note that mileage reimbursement is distinct from general business travel expenses. While travel expenses might include lodging, meals, and transportation costs, mileage reimbursement specifically addresses the use of personal vehicles for work-related purposes.
Reimbursement is intended to cover fuel costs, vehicle maintenance, and depreciation without the company directly covering those costs. For instance, if an employee spends $30 on gas for a work trip, they will only receive the per-mile reimbursement, not an additional $30 for fuel costs.
Establish well-defined travel and reimbursement policies to clarify your company’s stance. When creating these policies, consider federal and state mileage reimbursement laws, employee vehicle usage frequency, and the tax implications of your mileage reimbursement strategy.

How Much Is Mileage Reimbursement?
Most companies follow the IRS’s published mileage reimbursement rate, which is regularly updated. For 2024, the IRS standard mileage rate is 67 cents per mile for business use of a personal vehicle. This reflects a 1.5-cent increase from the 2023 rate, accounting for ongoing fluctuations in fuel prices and vehicle costs.
While many companies adopt the IRS rate, it’s crucial to understand that federal law doesn’t mandate businesses to reimburse employees for mileage in most cases. The exception is when not reimbursing would cause an employee’s compensation to fall below the federal minimum wage.
Some state laws do require mileage reimbursement, and many business leaders view it as a reasonable expense since employees use their personal resources for company benefit.
How To Calculate Mileage Reimbursement
The formula for how to calculate mileage reimbursement is simple: multiply the number of miles traveled by the reimbursement rate. For example, if an employee travels 100 miles for work, using the 2023 IRS rate, the calculation would be:
100 x $0.67 = $67.00
However, business leaders focus more on mileage tracking and reimbursement processing than the basic formula.
When business leaders ask, “How is mileage reimbursement calculated?” they’re likely less concerned with this simple formula and more with how mileage is tracked and employees receive their reimbursements.
Mileage Reimbursement Best Practices
To ensure your reimbursement policy is clear and fair, it should be easy for employees to find the policy. An internal company website with the reimbursement form helps streamline the process. An FAQ section on the website with the question “How much is reimbursement for mileage?” can save your accounting team from answering that question over and over.
The trickiest part of mileage reimbursement has always been accurately tracking the number of miles the employee travels. If they forget to log mileage on their car’s odometer, estimates are often used. This has historically led to companies overpaying for reimbursements. Thankfully, automated GPS tools and apps exist today that produce much more accurate mileage reports.
Once mileage forms have been turned in, the last step is to process the reimbursement in a timely fashion. Make the turnaround time a part of your reimbursement policy so that employees know what to expect. For example, you could issue reimbursement checks once a week or twice a month, whichever works best for your AP team.
To summarize, the best practices are:
- Clear Policy Communication: Make your reimbursement policy easily accessible to all employees, preferably on an internal company website.
- Streamlined Submission Process: Provide a user-friendly form for mileage submissions, either digital or physical.
- Accurate Tracking: Encourage the use of GPS tools or mobile apps for precise mileage tracking.
- Timely Processing: Establish and communicate a consistent schedule for processing reimbursements.
- Regular Policy Review: Annually review and update your policy to reflect changes in IRS rates and company needs.
Tax Implications of Mileage Reimbursement
Understanding the tax implications of mileage reimbursement is crucial for employers and employees. For employers, reimbursements at or below the IRS standard rate are considered tax-deductible business expenses. However, if reimbursements exceed the IRS rate, the excess amount may be partially taxable for the employee.
On the employee side, reimbursements at or below the IRS rate are typically not considered taxable income. Employees don’t need to report these reimbursements on their tax returns. However, if an employer doesn’t reimburse mileage or reimburses less than the IRS rate, employees may be able to deduct the difference on their taxes if they itemize deductions. It’s important to note that this deduction is subject to certain limitations and may not be available to all employees.
Alternatives to Mileage Reimbursement
While mileage reimbursement is a common approach, some businesses opt for alternative methods to compensate employees for vehicle use. One such alternative is the flat car allowance, where employers provide a set monthly amount for employees who use their personal vehicles regularly for work. This method can simplify administration but may not accurately reflect actual costs incurred by employees.
Another option is maintaining a company fleet of vehicles for business use. This approach gives employers more control over vehicle maintenance and usage but comes with higher upfront costs and ongoing management responsibilities.
Some companies prefer the actual expense method, reimbursing based on the specific costs incurred, such as fuel and maintenance, rather than using a per-mile rate. This method can be more accurate but requires detailed record-keeping and may be administratively burdensome.
Lastly, some businesses implement hybrid approaches, combining elements of different methods to suit their specific needs. For instance, they might offer a base car allowance plus mileage reimbursement for extensive travel.
Common Pitfalls to Avoid in Mileage Reimbursement
When implementing a mileage reimbursement policy, businesses should be aware of several common pitfalls. One of the most significant is inadequate record-keeping. Failing to maintain accurate mileage logs can lead to tax issues and potential overpayment, costing the company unnecessary expenses.
Another frequent mistake is overlooking state laws. While federal law doesn’t mandate mileage reimbursement in most cases, some states have stricter requirements. Businesses operating in multiple states need to be particularly vigilant about complying with varying state regulations.
Inconsistent policy enforcement is another pitfall that can lead to morale issues and potential legal problems. It’s crucial to apply the reimbursement policy uniformly across all eligible employees to avoid perceptions of favoritism or discrimination.
Many companies also fall into the trap of neglecting regular policy updates. As IRS rates and business needs change over time, failing to review and adjust the policy can result in outdated practices and rates that no longer serve the company or its employees effectively.
Lastly, ignoring available technology for mileage tracking and reimbursement processing can lead to inefficiencies. Many businesses still rely on manual tracking methods when numerous apps and software solutions can automate and streamline the process, saving time and reducing errors.
By being aware of these common pitfalls, businesses can develop more robust and effective mileage reimbursement policies that serve both the company’s and employees’ interests.
Choose indinero for Help With Policies Like Mileage Reimbursement
Most companies have to deal with mileage reimbursement at some level. Smaller companies might not have work vehicles for employees to use, creating many situations where employees need to be reimbursed for mileage traveled. But even large companies with many remote offices will need to process reimbursements, as employees travel to and from the company headquarters.
No matter the size of your company, a clear and effective reimbursement policy saves your company money and keeps employees happy. It’s just one of many financial policies a company needs to succeed. For help and guidance on these policies, choose the experienced team at indinero. Reach out to us today to see how we can help.