Mileage reimbursement programs can be great for your business and your employees, but many small business owners aren’t clear on the specifics of designing and implementing a program.
While it’s actually a surprisingly simple process, there are some things you should know going into designing a mileage reimbursement program for your business. Here, we’ll discuss some things to consider as you plan and implement your employee mileage reimbursement program so you are not making the same mistakes many companies make initially.
What Are the 2019 Mileage Reimbursement Rates?
The IRS sets a standard mileage reimbursement rate each year so that employees, contractors, and employers can use them for tax purposes. This rate fluctuates year to year and applies to cars, trucks, and vans. For 2019, these rates are:
- 58 cents per mile for business miles driven (up from 54.5 cents in 2018)
- 20 cents per mile driven for medical or moving purposes (up from 18 cents in 2018)
- 14 cents per mile driven in service to a charitable organization (currently fixed by Congress)
Most businesses structure their reimbursement policies around the IRS standard business mileage deduction of 58 cents. Does this mean that you should use this exact rate as well? Not necessarily, but we’ll discuss more about how to make that decision below.
Do I Need to Use the Standard Mileage Reimbursement Rate?
The short answer is, most companies do, and it may be a good fit for your business. That said, the federal standard mileage rate is merely a recommendation.
If you conduct business in a part of the country where gas and tolls are more expensive, you might want to increase your rate. However, if you choose to use a rate that exceeds the federal rate, the excess income would be taxable for the employee (something to keep in mind when selecting a rate).
Alternatively, if you’re operating in an area that’s less costly, you might consider lowering your rate. The standard mileage rate is based on shifting national averages, and may or may not fit all areas of the country.
Even if you choose not to reimburse your team at all, they may be able to get money back by deducting their mileage expenses from their gross income. We’ll talk more about how this works in practical terms in a moment, but employee mileage is tax deductible whether or not you have a reimbursement program in place.
How Much Does the Average Company Reimburse Their Employees for Mileage?
While some companies choose to adapt the rate at which they reimburse their employees according to driving costs in their area, most businesses choose to use the standard mileage rate established by the IRS.
The standard mileage rate not only makes things simple for your business, but your employees as well — they don’t have to worry about reporting taxable income resulting from reimbursement in excess of the standard mileage rate.
If you’re paying your team back for the miles they drive, you can use expense tracking software to pay your employees at the rate you choose, whether it be every two weeks, once a month, or once every few months.
Whatever you decide, set a rate, have you employees enter their mileage, and then use that mileage to calculate how much to reimburse them. You can reimburse them through your existing payroll software, or through another method if you prefer.
Remember, if you don’t reimburse for business mileage, employees can deduct the cost of driving for work from their gross income on their taxes.
Tax Basics for Company Mileage Reimbursement
In order to discuss the tax basics of a company mileage reimbursement program, we’ll need to talk a little bit about how mileage tax deductions work. Employees track their mileage to and from work obligations (while documenting the purposes of the trips) or any of the other tax-deductible destinations we mentioned earlier.
Employees then use the IRS rates (or the actual costs of using their own vehicles) to calculate the amount of money that is deductible from their gross income. While your team can document their mileage using a plain old spreadsheet, there are a number of excellent mileage tracking apps available that automate mileage logging, saving your team time while saving you money.
Here’s where the catch comes in for your employees. Your employees can’t use the business standard mileage rate if they’ve already claimed a Section 179 deduction for the same vehicle they use for work.
Additionally, employees may not use the business mileage rate for five or more vehicles simultaneously. Also, though it should be understood, employees can’t deduct their commute, as nice as that would be. If you’re looking to minimize your team’s commuting stress, consider offering commuter benefits.
We should also discuss the FLSA kickback rule, which is a narrow exception concerning mileage reimbursements that companies need to adhere to if their employees are earning near or at the minimum wage.
This law is called the kickback rule because it regulates money “kicked back” to the company through under-reimbursed mileage expenses. If the value of those “kickbacks” pushes the employee’s salary below the minimum wage, a wage and hour issue arises.
How Do I Track Employee Mileage?
While employees have been tracking mileage in notebooks or on the backs of receipts for decades, technology has made tracking business mileage easier than ever before.
The best way to reliably track employee mileage is by using an app that tracks mileage automatically, removing the guesswork and possibility for human error (and forgetfulness!).
Everlance also tracks business expenses and keeps IRS compliant records, so that you and your employees can keep your financial records close at hand and know confidently that they’re in order in the (unlikely) event of an audit.
It’s a good idea to have certain requirements for your employees’ mileage logs. You can download a free Excel mileage log template to distribute so that your team knows what’s expected from their records if they decide to keep them themselves.
Conclusion About Mileage Reimbursement
Mileage reimbursement law isn’t terribly complicated, but it is important to know the impact on your business and your employees before implementing a program. Be sure that your employees are keeping standardized mileage records and that you have certain standards in place to avoid reimbursing on false pretenses. If you are looking for a mileage tracking and reimbursement solution, setup a time with our team for a demo and see how much time your team can save this year!