Glossary of Human Resources Management and Employee Benefit Terms
What Is the Federal Mileage Rate?
The federal mileage rate is the amount of money an employee can deduct from their federal income taxes for the costs of operating a personal car, van, pickup, or panel truck for qualified business, charitable, medical, or moving purposes. The Internal Revenue Service (IRS) determines this rate every year, adjusting for inflation and other variables involved in owning and operating a vehicle. Such variables include:
A taxpayer can decide to use either the federal mileage rate when making deductions for qualified expenses, or they can calculate actual expenses themselves.
Are Companies Required to Pay Mileage?
While the practice of reimbursing employees for the miles they drive in their personal vehicle on behalf of work is standard practice, it is not required by law for companies to do so.
However, there are four legal requirements to follow when offering mileage reimbursement:
Mileage reimbursements must be made only for deductible business expenses, such as business travel.
Claims must be supported by employer records that include details such as the time, place, and purpose of travel.
The employee must return any excess reimbursement to the employer.
Employers may choose to reimburse employees at a rate lower than the federal mileage standard. However, the rate must be high enough to cover expenses so that personal vehicle use doesn’t drop an employee’s wages below minimum wage.
Additionally, there are some other considerations for companies paying mileage under an accountable plan regulated by the IRS (meaning, all reimbursed mileage solely relates to the employer’s business and is reimbursed according to the IRS standard mileage rate):
The employer doesn’t have to report the reimbursement as taxable wages on an employee’s W-2.
Reimbursed payments are a deductible expense for both the employer and the employee.
For non-accountable plans:
Employers can (and should) establish detailed mileage reimbursement guidelines.
Employers may choose to require or allow employees to submit actual travel-related expenses instead of using the flat federal reimbursement rate. This is especially the case if actual expenses exceed federal rates.
What Does the Federal Mileage Rate Cover?
Federal mileage rates cover both variable and fixed costs of operating an automobile.
Variable costs include:
Fixed costs include:
Federal mileage rates do not include:
Vehicle use for personal purposes
Use of a company car
How Much Is the Federal Mileage Rate?
The IRS sets the mileage rate for business use based on the previous year’s average fixed and variable costs associated with operating a vehicle in the United States. The IRS mileage rate for medical and moving purposes is based on a variety of variable costs.
The current federal mileage rates (as of 2022) are:
58.5 cents per mile for business use
18 cents per mile for medical or moving purposes
14 cents per mile for charitable organizations
How Is Federal Mileage Reimbursement Calculated?
To calculate the mileage reimbursement amount due to an employee, multiply the number of qualified miles by the applicable rate.
On three different occasions, Gunther used their personal vehicle to pick up supplies for their coffee shop. The distance traveled each time was 13 miles. Therefore:
13 miles X 3 trips = 39 total miles
39 miles X ¢58.5 per mile = $22.82 to be reimbursed to Gunther
For more information on the federal mileage rate, including who qualifies for it and how to calculate it, visit our entry on federal mileage reimbursement.
Does the IRS Require Odometer Readings for Federal Mileage?
Employers can require employees to provide odometer readings for each trip. However, the IRS does not require separate odometer records for each business trip to qualify for federal mileage reimbursement.
The IRS does require odometer readings:
At the beginning and end of each year
When a new vehicle is used
Additionally, the IRS requires employees to record mileage use, along with the date, destination, and purpose of the trip if reimbursements are being deducted on their federal income taxes.