As the experts in business vehicle program management, and as the company who helps set the IRS mileage rate, we hear a lot of questions about mileage reimbursement and deductions. From taxation and compliance to mileage tracking and best practices, we’ve heard them all. Some questions, however, we hear more often than others. Here are a few of the most common questions about mileage reimbursements that we know you want answered.
What is the current federal mileage rate?
The current IRS mileage rate for 2017 is 53.5 cents per mile. This was a decrease from the year before when the rate was 54 cents per mile. The IRS uses data provided to them by Runzheimer every year to update the rate based on the cost of owning and operating a vehicle in the previous year. A common misconception about this rate is that it is a reimbursement number for those who drive for business. In fact, many organizations will adopt the rate every year, and update their reimbursement accordingly.
Is mileage reimbursement taxable?
If you are currently receiving a per-mile reimbursement from your employer, or if you are the employer paying the reimbursement, you might want more clarification on the taxes that may impact the reimbursement. So is a per-mile program taxed? The short answer is no, as long as the employer is reimbursing at or below the standard IRS mileage rate. If they are reimbursing above that rate, then you would owe taxes on the difference between your mileage rate, and the standard rate. For example, if your employer was giving you 60 cents per mile with the standard rate being 54 cents per mile, you would owe taxes on about 6 cents per mile.
What is the best way to track business mileage?
Tracking business mileage can be an extremely cumbersome task. Because of this, many people just resort to guessing how many miles they drove or writing down the odometer reading at the end of the day. The problem is, these methods are often inaccurate to the true business miles that were driven.
In reality, true IRS-compliant mileage logs need to be very specific and contain details about the trip that was made. The IRS has strict guidelines around what makes up a compliant mileage log. Here are the components:
- Starting Location
- Ending Location
- Number of Miles Driven
- Time and Date
- Purpose for the Trip
As you can see, each individual trip needs to be accounted for with very specific information. If you or your employees who drive for work are not keeping mileage logs with these details, you carry the risk of an audit. With today’s technology, keeping track of all this doesn’t have to be complicated. Phones with GPS built in and the right mobile app can completely automate this process for you.
What are the pros and cons of a mileage reimbursement?
When evaluating anything, it always helps to make a quick "pro/con list" to make sure what you are doing is the best choice for you. When it comes to vehicle reimbursements, it is no different. Here are some of the pros and cons of mileage reimbursements:
- Relatively simple to execute and administrate
- Does not accurately reimburse all drivers
- Mileage logs can be complex if done correctly
- Inaccurate mileage and “mileage padding”
As you can see, the cons do outweigh the pros, but depending on your organization’s individual situation, this could be the best fit for you.
What does a mileage reimbursement program look like at most companies?
Mileage reimbursement programs are one of the most common reimbursement types that businesses use today.
As mentioned above, for a mileage reimbursement program, organizations will very often use the IRS mileage rate for that tax year. Organizations see that number as “safe” because it was something that the IRS produced, so they figure that it must be 100% accurate all the time. However, the IRS mileage rate is actually meant to be the maximum amount an individual is able to write off per mile on his or her vehicle for tax purposes. For example, a small business owner who does a lot of driving for business would be able to deduct that amount from their taxes as a business expense.
Because of this misconception, organizations fail to realize that using the IRS mileage rate a standard reimbursement can be inaccurate. First, the rate is based on a national average which causes issues in high-cost areas like California or Nebraska. Second, high mileage drivers will be significantly over-reimbursed and those with low mileage will inversely be under-reimbursed. Finally, the cost of a vehicle can significantly change throughout the year. Think back to 2014 when gas prices skyrocketed to $4 per gallon nationally. A few short months later, prices were back down under $3 per gallon. Using the same mileage reimbursement all year could be causing unnecessary strain on business drivers and your organization.
A mileage reimbursement is a good idea for organizations that have certain criteria. For instance, if your organization has individuals who only drive occasionally for business (What Runzheimer defines as <5000 business miles per year), have only a few mobile workers, or a combination of both, you would be a good fit for this type of program.