How To Calculate Mileage Reimbursement In 2023
In this article, we cover how to calculate mileage reimbursement in 2023 and outline the best methods and tools for tracking mileage.
Mileage reimbursement might be simple to calculate when you have all the data, but the concept is often misunderstood. It’s imperative to get familiar with all the terms and conditions to fully comply with IRS regulations and use the mileage reimbursement to your advantage to pay lower tax fees.
It’s also a good idea to know the IRS rates as the current economic state of affairs in the world brought us some massive changes and even bigger gas prices.
Mileage Reimbursement for Employees
Mileage reimbursement is defined as payments made by the employer to the employee for all the expenses included in driving their personal vehicle for work-related journeys. While you might notice that reimbursement is not mandatory on the federal level in most cases, almost all companies have their own way to compensate the employees and maintain good relationships as well as retain talent.
But, mileage reimbursement is a complex term that includes a lot of variables and different tax treatments, so depending on your business and employment status you need to fully understand all the differences.
It’s easy to calculate the miles, but in reality, it’s very hard to keep track of all the data and it’s especially challenging to keep up with large teams in the field. That’s why we’ll also cover the best time clock systems so stay tuned until the end.
Here are a few reasons why you should consider implementing a good tracking system and a mileage reimbursement plan at your company:
- Improving employee satisfaction in a very tight labor market – Like mentioned before mileage reimbursement is not mandatory on the federal level except if the costs of vehicle maintenance push the employee’s wage under the national minimum, or in certain states such as California and Massachusetts. But, even though it’s not a mandatory requirement many employers offer to reimburse the work-related traveling to maintain good relationships with the employees and retain the top talents in the industry. In today’s labor market employers need to ensure the best working conditions and provide extra perks for the top talents to increase retention. Proper and fair mileage reimbursement can help with this in many ways.
- Cutting costs – While it might sound conflicting, improved mileage tracking can actually save you money in the long run. This is simply because most companies rely on the manual tracking of employee hours and mileage, and thus pay way more than they should. So, even though a trustworthy relationship with your employees should be a priority it’s even better to implement an objective tracking system that will have all the relevant data you need for optimal calculations and the best mileage reimbursements. That way you will only pay what’s really needed and reimburse your employees for the actual work-related journeys.
- Avoiding disputes – If you want to have a smooth collaboration with all the employees and ensure there is no added stress or tension involved you should consider proper mileage tracking. In addition, with the proper tracking and paper trail, you will have the proof you need for all the payments and even enough to present your case if the IRS has some questions on tax-related matters. While IRS mileage rates are not mandatory it’s crucial to treat the mileage reimbursements as expenses to avoid additional taxing.
How to Calculate Mileage for Work?
Calculations for the mileage reimbursements might be simple when you have all the data, but keeping an accurate log of miles is very challenging. Depending on the size of your company as well as the number of employees who need to track mileage this simple task can become tedious logging, manual calculations, and additional work you need to do for each payment period.
There are a few things that make the tracking harder such as
- Making sure all the mileage is work-related as other trips are not reimbursed;
- Relying on employees to remember and accurately log in all the required data;
- Collecting and manually calculating all the mileage, and reimbursements and applying it to payroll.
Even though companies use various methods to log and track hours there are a few mandatory things each log needs to have.
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What should a mileage log include?
There are a few requirements each log needs to include, and some additional notes if your company needs them.
- Miles driven – This is one of the most important aspects of the log and should include the accurate distance driven based on the start and finish of the route.
- Dates – Each log needs to include the date and the time that the ride took place
- Location – Preferably the mileage log needs to include the exact locations and confirm that all the traveling is work-related
- Reasons for the trip – This short note should be included to better explain the reason behind the trip and ensure complete compliance with the law and mileage reimbursement, in case there are any disputes.
Now, let’s cover some of the most used and recommended ways to track mileage. There are no federal or state laws on proper management and tracking of the miles, but some methods have shown better results.
Mileage Log Books
Mileage log books are manual inputs from the employees on the site into paper log books or printed timesheets. While this form of logging is fast and easy to implement in your company, in reality, this type of logging the mileage is often very inaccurate and cumbersome.
Employees can easily forget to log their mileage, and the employer still needs to manually collect all the data and perform all the calculations. In addition, manual logging completely relies on employee honesty which can’t always be relied upon. With log books there is no way to track the actual miles that are work-related and anything on the odometer can be put in the timesheet as miles that need to be reimbursed.
So, log books might be a decent solution for smaller companies, but there are better options out there.
GPS Tracking Devices
A step beyond simple manual tracking and odometers is the GPS tracking device that is placed in each vehicle or the employees carry with them. But, even though GPS tracking devices are accurate and automatic, they are quite expensive and still lack the connection with the employee’s timesheet each day.
So, GPS tracking devices are more accurate than classic log books but involve the manual collection of the data and additional expenses.
Recommended: GPS Time Clock Apps
Modern GPS time clock apps combine the best of both worlds and even integrate the solutions with everyday timesheets automatically. The new technology in mobile devices allows you to use any device as a GPS tracker and automatically store and share the data with one central system.
With the GPS time clock, you can see all the mileage your employees make, but also have a better insight into clocking in and out, breaks, and even have the automatic calculations for the mileage reimbursements. With the payroll system integrations, you will save a lot of time spent on manual calculations and ensure everything is compliant with state laws and regulations.
So, if you want to have completely automated GPS and mileage tracking you should consider time clock apps such as Workyard.
What Is the IRS Mileage Rate in 2023?
Although the IRS rates are not mandatory, they do illustrate the higher expenses for gas and vehicle maintenance. With rising costs, the IRS is constantly modifying the rates and adapting them to the national average.
The IRS has announced a change in mileage rates starting January 1, 2023, most likely owing to rising fuel prices. Mileage rates effective January 1, 2023, are as follows:
- For business reasons, the rate is 65.5 cents per mile, up 3 cents from last year.
- Medical and relocation cost 22 cents per mile, a 4-cent increase over the first half of 2022.
- The charitable driving rate of 14 cents per mile stays constant.
Nonetheless, while these rates are typically acceptable suggestions, several businesses have customized reimbursement plans based on real pricing in their states. As a result, rates suggested by the IRS are frequently merely suggestions, and business owners have their own methods.
Keep in mind that the rate you pay for mileage reimbursement needs to be equal to or less than the IRS rate if you want to avoid additional taxes. On the other hand, if you choose to have a flat car allowance as a periodic payment to your employees this amount is usually taxable.
How to Calculate Mileage Reimbursement?
The calculations are straightforward once you have the actual data and the mileage your employees have clocked.
We can create a formula using the IRS rates as an example:
Mileage reimbursement = Miles driven x IRS mileage rate
To illustrate, if you have an employee who has recorded 150 miles for the week and the regular IRS rate, you can calculate the reimbursement:
150 miles x 0.625 = $93.75
So, in this case, the employer has to pay $93.75 for the mileage reimbursement to the employee.
Maximizing Mileage Tracking and Reimbursement Efficiency
To streamline your mileage tracking process and ensure compliance with regulations, it’s essential to use the right tools and understand best practices.
- Consider the Costs of GPS Tracking
Before implementing a GPS tracking system for mileage, it’s important to evaluate how much does GPS tracking cost. Understanding the cost can help you make an informed decision about the benefits versus expenses of using a GPS system for accurate mileage tracking. - Automate Payroll for Reimbursement Accuracy
Integrating your mileage data with payroll is crucial for efficiency. By learning how to automate payroll, you can ensure that your reimbursements are processed quickly, accurately, and in compliance with IRS guidelines. - Avoid Common Time Tracking Mistakes
Accurate mileage tracking goes hand-in-hand with proper time tracking. To prevent issues and discrepancies, check out the common time-tracking errors and how to avoid them for more efficient mileage and payroll processes. - Leverage Job Management Tools for Better Oversight
Managing multiple job sites and ensuring all work-related travel is tracked correctly can be challenging. Job management tools can provide better oversight of your field operations and improve accuracy in tracking work-related mileage. - Track Employee Productivity with GPS Data
Using GPS data not only to track mileage but also to understand productivity is a smart move. Learn more about measuring employee productivity through comprehensive time and location tracking. - Selecting the Right Time Tracking Devices
If you prefer a more hardware-based approach to tracking, explore the different time-tracking devices that can complement your mileage reimbursement efforts and simplify the logging process. - Stay Compliant with Employee Time Tracking
Ensuring compliance with labor laws and regulations is key when managing mileage and employee hours. Learn about the value of whether salaried employees clock in and out, which can help maintain accurate records and prevent potential compliance issues.
By exploring these resources, you can better manage your mileage tracking, ensure accurate reimbursements, and improve your overall operational efficiency.
How to Pay Mileage to Employees?
Now that you have all the numbers and calculations it’s time to pay the employees the mileage reimbursement.
Keep in mind that when running payroll mileage reimbursements should be recorded as expense reimbursement so they are not taxed as income.
Once you have the exact calculations and want to make the reimbursements, it’s easiest to incorporate them into the existing payroll process in your company.
Making mileage reimbursements as part of your payroll is ideal because:
- You have a complete audit trail of all payments processed. This is important for you as the employer, your employees as well as the potential audit with the IRS. No matter what method you use to track the miles it’s vital to have proof of driven and reimbursed traveling.
- It gets incorporated into the employee’s final pay stub ensuring complete transparency and the best reimbursement rates that will allow you to spend only the needed amount of your business budget for traveling.
- You will save time by not having to process individual payments. When you have everything integrated into one payroll system, including the hourly wage, mileage reimbursements, and overtime it’s less likely to make any mistakes and you cut on manual labor and additional costs. It’s also easier to follow federal and state regulations and have a paper trail for the IRS audits and potential tax issues.
Employee Mileage Tracking With Workyard
To recap, calculations of the mileage reimbursements might be simple but the actual data and mileage collection are challenging. That’s why you should rely on reputable and efficient time apps such as the Workyard GPS time clock app.
With the Workyard app you will be able to:
- Automatically and accurately capture mileage and travel time for every driving trip whilst an employee is clocked in for work. Workyard will also plot a worker’s site visits and driving on a map so you can understand the reason for every trip
- Easily produce a weekly mileage report for your whole team that can be used for any payroll process.
- Automatically mileage and travel time to each of your projects. Some businesses need to track mileage for each of their projects so they can accurately bill their clients for that mileage. Workyard makes project mileage tracking accurate and completely automated.
Mileage reimbursement typically covers the costs associated with using a personal vehicle for business purposes. This can include fuel, maintenance, wear and tear, insurance, and depreciation. The reimbursement rate is usually calculated on a per-mile basis, set by either the IRS (for U.S.-based businesses) or an employer’s own policy. However, it does not cover parking fees, tolls, or other travel-related expenses, which are usually reimbursed separately. The primary goal is to fairly compensate employees for out-of-pocket vehicle costs incurred while performing work duties, without considering commuting from home to work as eligible mileage.
Mileage reimbursement is generally not considered taxable income if it adheres to IRS guidelines and is provided under an accountable plan. If the reimbursement amount is equal to or less than the standard mileage rate (e.g., 65.5 cents per mile in 2023), it is tax-free for both employers and employees. However, any excess reimbursement beyond the IRS rate or amounts provided without proper documentation could be subject to tax. Non-accountable plans, where the employee doesn’t submit mileage logs or expenses, might also lead to the reimbursement being taxed.
Yes, you can claim mileage reimbursement for business trips made in a rental car, but the process may differ from using a personal vehicle. Instead of calculating mileage based on distance traveled, the reimbursement often covers rental fees, gas receipts, and any additional charges related to the business trip. Some companies may still prefer to calculate mileage if it aligns better with their internal policies. It’s important to check with your employer on how they handle mileage reimbursement for rental vehicles before submitting claims.
To accurately track mileage for reimbursement, use a mileage log or digital tool that records the date, destination, purpose of the trip, and miles traveled. This can be done manually using spreadsheets or notebooks, or through dedicated mileage tracking apps that automatically capture travel details via GPS. Ensure logs are detailed and match your expense claim, as they are often required for tax purposes or employer review. Many businesses prefer digital apps as they reduce the risk of errors and make it easier to generate accurate reports.
Yes, mileage reimbursement rates can vary depending on the type of vehicle used. While the IRS provides a standard rate for cars, vans, pickups, or panel trucks, some organizations set different rates for other modes of transport, such as motorcycles or bicycles. Additionally, electric and hybrid vehicles may have distinct reimbursement rates based on their energy consumption and maintenance costs. Employers may establish unique policies to reflect these variations, so it’s essential to review the specific rates provided by your company before submitting any mileage reimbursement claims.
