How mileage reimbursement works

In some cases, your employer will reimburse some or all of the costs of your business travel. This also applies to driving you do in a personal vehicle for business purposes. So if you have to drive your car to a conference or just to another branch of the company for a meeting, you may get reimbursement. Keep in mind that this doesn't apply to your normal commute to and from work.

If your employer doesn’t reimburse your expenses, you may still be able to get back the money you spent by claiming it on your taxes. That can include not only your mileage, but in some cases you can deduct your car insurance, parking, and maintenace costs. The changes from the Tax Cuts and Jobs Act in 2017 eliminated this deduction for most people, but you can still make it in some circumstances.

In this article:

• Who can get miles reimbursed on their taxes?
• How much is mileage reimbursement?
• Do any employers have to reimburse employee miles?

Who can get miles reimbursed on their taxes?

In the past, if you had unreimbursed business expenses (such as mileage), you could deduct it on your federal tax return if it exceeded 2% of your adjusted gross income (AGI). You just needed to itemize your deductions.

The tax reform in 2017 limited this deduction to reserve members of the U.S. Armed Forces, qualified performing artists, fee-based state and local government officials, and individuals with physical or mental disabilities who pay for attendant care at their place of employment.

Aside from those mentioned above, there are three other situations where you can get reimbursed for mileage on your tax return:

• You are self-employed and use your car for business.
• Your mileage was necessary for medical or dental care.
• You incurred mileage volunteering for a nonprofit.

Deducting mileage that exceeds 2% of your AGI

If you’re in the reserves and want to take this deduction, you will need to have expenses for travel that’s more than 100 miles from your home. Then you will need to fill out Form 2106 and Schedule 1. You do not need to itemize your deductions.

Qualified performing artists can deduct mileage and other business expenses by completing Form 2106 and Schedule 1. You do not need to itemize. You may be a qualified performing artist if you meet the following:

• You’re a performing artist with at least two W-2 forms, each with at least $200 from an entertainment company.
• Your AGI, before this deduction, is $16,000 or less.
• The performing-related deductions you’re making equal at least 10% of your AGI.

Government officials can qualify to deduct mileage if they’re employed by a state or political subdivision of a state (e.g. a city) at least partially on a fee basis. You will need to fill out Form 2106 and Schedule 1. It isn’t necessary to itemize deductions.

Disabled workers with impairment-related expenses at work must itemize, using Schedule A, to deduct expenses.

Business mileage for self-employed workers

Self-employed workers can deduct miles they drive in their personal cars for business. You cannot deduct the cost of driving into a regular office, but otherwise it doesn’t matter if your going to meet a client or buy work supplies. You will need to claim your business miles as expenses in Part II of Schedule C.

If you plan to get reimbursed for business miles, you need to keep a detailed mileage log. Without records, the IRS may not accept your mileage. Your log should include the dates, miles traveled, and reasons for all of your mileage. Ideally you can include odometer readings as further proof. This is a lot of work, but there are apps and services that make it easier.

Mileage for medical or dental expenses

If you had medical or dental expenses that exceeded 7.5% of your AGI in 2018, you can deduct the excess by itemizing your deductions. This includes travel for medical appointments and similar medical services.

Mileage volunteering for a nonprofit

If you spend money traveling in service of a qualified nonprofit or charitable organization, you can deduct the cost of that mileage. To do so you will need to itemize on your tax return. This mileage falls under the category of a charitable contribution.

Mileage as part of moving expenses

Before the 2018 tax year, you could deduct expenses, including mileage, that resulted from moving for your job. Whether your company moved across the state or across the country, if you drove there without getting reimbursed by your employer, you could deduct your mileage and travel expenses.

Because of the 2017 tax reform, the only people who can now take this deduction are people in the Armed Forces who are on active duty and move because of a permanent change of station. To claim this deduction, you must use Schedule 1 of Form 1040. You do not need to itemize.

How much is mileage reimbursement?

The IRS releases annual guidelines on how much to reimburse employees and taxpayers per mile. These are known as the standard mileage rates and they vary by type of mileage.

The standard mileage rates for 2019 are as follows:

• 58 cents per mile driven for business (up from 54.5 in 2018)
• 20 cents per mile driven for medical or moving purposes (up from 18 cents in 2018)
• 14 cents per mile driven in service of charitable organizations (same as 2018 rate)

Do employers use the standard mileage rates?

If your employer reimburses mileage, they can use a reimbursement rate that’s higher or lower than the federal guidelines. Just know that any reimbursement above the standard mileage rates is taxable. You will need to pay income tax on it and there’s always the possibly it pushes you into a higher tax bracket.

Using the standard mileage rates on your taxes

If you’re deducting mileage on your taxes, you can calculate your deduction amount using the standard rates. So if you drove 100 miles for a charitable organization, you can deduct $140 (100 miles x 14 cents per mile).

In the event that you don’t think the standard rate is enough to cover the full cost of driving your vehicle, there is another calculation method that allows you to deduct your exact expenses.

Calculating actual car expenses for your taxes

When the standard mileage doesn’t cover the true cost of operating your vehicle, you can calculate the actual car expenses. Then you can deduct that amount on your taxes instead of using the standard rates.

This allows you to deduct any and all of the following:

• Depreciation
• Garage rent
• Gas
• Insurance
• Lease payments
• Licenses
• Oil
• Parking fees
• Registration fees
• Repairs
• Tires
• Tolls

To calculate the actual cost of your business travel, you need to know exactly how much you spent. Make sure to keep records of all expenses.

The standard mileage rate usually results in a bigger deduction than calculating the exact cost of using your vehicle, but this may not always be the case, especially if you’re filing taxes as an Uber or Lyft driver.

If you use a car for business and personal reasons, you will need to prorate the amount you spent. For example, if 30% of your car usage is for business and the other 70% is for personal use, you will need to prorate your car expenses so that you’re only requesting reimbursement for 30% of your total driving expenses.

Anyone including depreciation of an automobile should make sure to check the IRS depreciation limits. There are maximum deductions based on what kind of automobile you have and when you got it.

Do any employers have to reimburse employee miles?

Whether or not employers are obligated to reimburse their employees’ mileage depends on both state and federal rules. Federal law does not require employers to reimburse mileage or other business expenses. The one exception is when those expenses would cause an employee’s actual wages to drop below minimum wage. In that case, the employer would need to reimburse the employee for mileage (or other business expenses) so that their earnings come to at least minimum wage.

As a simple example, let’s say someone who works full-time and earns the federal minimum wage of $7.25 per hour has to pay $50 for the gas to drive to a business conference. That person’s actual earnings for the week of the conference would be $6 per hour:

$240 in pay for the week ($7.25 x 40 hours is $290 and then you subtract $50 in expenses) divided by 40 hours is $6 per hour.

In this case, the employer would need to reimburse the employee for at least $50 in order to bring their hourly earnings back up to $7.25.

State reimbursement laws

Local minimum wages differ from the federal rate, so your employer may need to reimburse you to keep your earnings above the local minimum wage.

Some places require employers to reimburse mileage and business expenses. Other places allow you to deduct unreimbursed expenses on your state tax return. Look for mileage reimbursement from your employer or on your taxes if you live in any of these states:

• California
• District of Columbia
• Illinois
• Iowa
• Massachusetts
• Montana
• New York
• Pennsylvania

Check with your state’s local tax department to clarify the laws in your state or city.

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