Federal Mileage Reimbursement

What is Federal Mileage Reimbursement?

Mileage reimbursement refers to when employers offer reimbursement for expenses associated with driving on behalf of the business. This means that to cover all of the employee's vehicle costs which are incurred under the job, an employer pays a cents-per-mile rate, and that rate is based on the Federal Reimbursement Rate – also known as the standard deduction - that is imposed by the IRS (Internal Revenue Service).

Advantages of Federal Mileage Reimbursement

Reimbursements are simple to calculate and require little bookkeeping. They are also cost-efficient and provide a tax break because mileage reimbursement is a deductible business expense for companies.

Offering mileage reimbursements to employees is also a great perk and can help increase a company’s employee satisfaction level, which in turn increases retention level.

How to utilize the Federal Mileage Reimbursement

While an employee can choose to deduct actual expenses incurred or take the standard mileage deduction, the employees who take the standard deduction have a much simpler job to do. Odometer checks are required as proof for reimbursement. However, employees normally do not need to save receipts if they use the standard mileage amount.

The employee must own or lease the vehicle to successfully claim the standard mileage rate on it. It is important to note that commuting to an employee’s regular place of work/business is not deductible, but it is possible to be reimbursed for driving to client meetings or business events.

Other fixed costs include insurance, registration, lease payments, and deprecation. Variable costs include fuel, oil, tire wear, maintenance & service charges. Costs that are not considered to be reimbursed are parking fees, toll fees, use of a vehicle for personal purposes, or the use of a company vehicle.

Conclusion

Companies are not obligated to reimburse employees for business-incurred expenses, or for the mileage driven in their personal vehicles for work-related purposes. But it is considered standard practice, and it is beneficial for companies to help lower their tax liability and is a cost-effective business expense.

Some companies might use a different rate than the one set by the IRS. They may also use a different reimbursement method for business mileage, which means it’s important for the HR and Finance teams to be aware of their company’s reimbursement policies and apply them accordingly.

Reimbursement is paid out monthly to employees and usually through the company’s payroll system.