Mileage reimbursement is common practice but it is important to note that it is not mandated by the federal government unless failing to do so would reduce an employee’s income below minimum wage. Some states do have their own set of rules, so make sure to double-check before setting up a policy.
The Internal Revenue Service (IRS) considers many factors when setting the standard mileage reimbursement rate. This includes gas, repairs, maintenance, depreciation, cost of living, and inflation. The standard rate can then be used by businesses to create a clear policy for their employees. What is important about the standard rate is that it is the cut-off for when the reimbursement amount becomes taxable income. If a company reimburses at the standard rate, the employee will not need to claim the additional income. Every cent after will be taxable income. On the other hand, if your business is small, travel time is low, or your company is located in a less expensive area, you can offer a lower rate to employees.
Mileage reimbursement is a minimal employee expense and can be a wonderful perk for employees, especially for high-travel work. That said, it doesn’t have to be one size fits all. Take into consideration business expenses, industry norms, and frequency of travel. Use that data to create a fair and consistent policy that makes sense for your company. Educate employees on the policy and inform them of any tax repercussions if you are using a higher rate.
If you do choose to go with the standard rate set by the IRS, make sure to check back every few months to see if there has been an update.
