Company mileage reimbursement policies can benefit both employees and business owners. For employees, it provides compensation when they put their personal vehicle to business use. At the same time, it offers tax-deduction benefits to businesses.
However, the rules on mileage reimbursement can be more complicated than other forms of business travel expenses, which merely require employees to provide a receipt when filing their moving expenses.
This article will give you an overview of company mileage reimbursement fundamentals, how to implement a company mileage reimbursement policy for your business, and how to reimburse your employees for mileage.
What is company mileage reimbursement?
Company mileage reimbursement is an allowance that business owners may offer their employees to cover business-related mileage incurred when using their personal vehicles for work purposes.
The company mileage reimbursement may cover the following expenses:
- General maintenance
- Car depreciation
- Parking fees
- Registration fees
- Running errands for business supplies
It’s also important to clarify what counts as business mileage. Some employees might be confused about whether or not the commute from home to the office or vice versa should be deducted as business mileage. However, a commute is not an activity that generates a revenue stream for the business, hence it will not be considered a mileage deduction.
Most states do not require company mileage reimbursement, except in California, Illinois, and Massachusetts. You’ll want to check your state’s labor laws before making any decisions about mileage reimbursement to ensure you’re following state regulations.
Even if your state does not require company mileage reimbursement, it’s still a good idea to include this policy in your business.
Here are some reasons why:
- A company mileage reimbursement policy can increase employee satisfaction and retention.
- Having this reimbursement in the benefits package can attract high-quality candidates.
- A mileage reimbursement policy is often more cost-effective than maintaining company cars or a company fleet.
- Reimbursements to employees for business mileage is a tax deduction for small businesses.
You might also be interested in:
- How You Can Benefit From Mileage Tax Deductions
- Tax On Mileage: How Do You Claim Gas Mileage on Tax Return?
What are the IRS mileage reimbursement rates for 2022?
The IRS has set the company mileage reimbursement rate for 2022 as follows:
- 58.5 cents per mile driven for business purposes
- 18 cents per mile driven for medical/moving purposes
- 14 cents per mile driven in service of charitable organizations, and this rate is set by statute
These new rates apply as of January 1st, 2022.
How much should you pay your employees for company mileage?
It’s important to note that the IRS’s standard mileage reimbursement rate is advisory. In other words, employers can choose to reimburse their employees at a lower or higher rate than the one set by the IRS. Since running a business in different parts of the country can come with different costs, business owners can increase or decrease their reimbursement rate if their organization operates in an area with higher or lower expenses (such as gas and tolls).
Company mileage reimbursement is calculated by multiplying the standard mileage allowance rate (or the alternative rate you are applying) by the miles driven over a payment period.
For example, your employee has driven 1000 miles this month, and you’re using the IRS’s standard company mileage rate for 2022. In this case, the amount of their reimbursement will be $585.
How to implement a mileage reimbursement policy for your business
Businesses need to record their employees’ company mileage properly in order to provide them with tax-free reimbursement. These mileage logs must be accurate, consistent, and compliant with IRS rules.
They must also contain the following information: the starting point and the destination, the starting and ending time, the purpose and the date of the trip, as well as the mileage at the beginning and the end of the trip.
When setting up a mileage reimbursement policy, companies must ensure that the mileage meets specific criteria, including:
- The expenses must be business-related.
- The employee must provide an accurate and timely mileage report.
- The employee must return any payments in excess of the reimbursement within a reasonable timeframe.
Then, you need to inform your employees of the policy and ensure they know how to track their company mileage properly. In general, employees can track their mileage manually or digitally.
Track company mileage manually
If you choose to track your company mileage reimbursement manually, employees must fill out a manual log each time they drive their car for work-related purposes. This means the employees need to record their odometer readings at the end of each trip and/or map their mileage on Google Maps. Employees will then submit their mileage log to administrative staff, who will calculate the amount owed based on the set reimbursement rate.
However, tracking mileage manually can be tedious, and many employees may decide to estimate their distance at the end of the day rather than track it during the day. They may also overestimate or underestimate their mileage, or fail to measure it at all.
Additionally, manually tracking mileage logs and expenditure reports generate a ton of paperwork for administrative and payroll staff, who then have to examine and process them.
Track company mileage digitally
To avoid the hassle associated with manual tracking on paper–tracking mileage with a digital solution (such as a mileage tracking app) is more time-effective. It saves your staff time and effort, ensures accuracy by automatically logging their mileage, and helps your business compensate them appropriately without overpaying.
And Shoeboxed can help you with that! Once the employee starts tracking a trip, the app will generate a trip summary that contains the date, mileage, and details on the deductible rate. The app will even provide the route they took. Your employees can then easily submit their mileage reports for reimbursement.
The bottom line
Once you’ve understood how company mileage reimbursement works, you can save a lot of time and hustle and make the most out of your tax deductions. Moreover, it will increase employee retention and keep your business running smoothly in the long term.
Don’t forget to subscribe to the Shoeboxed blog to explore more helpful business information, guides, tips, and best practices for small businesses!
Shoeboxed supports multiple methods for receipt capture: send, scan, upload, forward, and more!
You can stuff your receipts into one of our Magic Envelopes (prepaid postage in the US). Use our Shoeboxed app to snap a picture while on the go. Auto-import receipts from Gmail. Or forward a receipt to your designated Shoeboxed email account.
Turn your receipts into data and deductibles with our expense reports that include IRS-accepted receipt images.
Join over 1 million businesses scanning & organizing receipts, creating expense reports and more—with Shoeboxed.
Try Shoeboxed for FREE now!