Employee Mileage Reimbursement: How It Works and IRS Rates

Employee mileage reimbursement is a form of compensation for employees who use personal vehicles for work-related travel. It’s a financial tool that helps businesses attract and retain talent while increasing employee satisfaction and not cutting into their net pay.

In this article, you’ll learn precisely what employee mileage reimbursement is, what the rates are, how it’s calculated, whether it’s taxable, and more. We’ll explore some of the special cases that involve self-employed professionals and contractors, and we’ll show you how to record mileage on relevant documents using the tools provided by Paystub.org.

Key Takeaways

• Employee mileage reimbursement is the employer-provided compensation to workers who use personal vehicles for business trips.
• This form of compensation isn’t federally mandated (except for some state laws), unless the cost of a business trip would reduce the worker’s income below the minimum wage.
• The IRS provides a cents-per-mile rate that employers can use to calculate reimbursement.
• If employers follow the rates provided by the IRS and issue reimbursements under accountable plans, these amounts won’t be taxed and don’t need to be reported.
• Self-employed professionals can also be reimbursed under accountable plans. Otherwise, the income will be reported on their Form 1099-NEC, and they can deduct it as a business expense.

What Is Employee Mileage Reimbursement?

Employee mileage reimbursement is a payment that employers make to compensate their workers for using personal vehicles for business-related trips.

Some of the expenses that the reimbursement most typically covers include:

• Costs of fuel
• Car maintenance
• Insurance premiums
• Registration fees

It’s important to know that the reimbursement for mileage doesn’t cover the cost of traveling to and from work. Instead, it’s used for trips like:

• Sales trips
• Client meetings
• Traveling between different work locations or offices
• Picking up supplies or making deliveries related to the job
• Driving to and from a temporary work site

The practice of offering mileage reimbursement to employees is common in fields where workers are frequently on the move, such as sales, real estate, field service, and home healthcare.

Businesses that offer this reimbursement are more likely to attract and retain talent. The costs of using a personal vehicle for work-related travel ramp up over time and can reach significant numbers. If not reimbursed, this would negatively impact the worker’s take-home pay, which would lead to reduced job satisfaction.

As a result, employers can offer to reimburse their employees with a flat sum or by the mile driven. It’s also important to note that employee mileage reimbursement can be tax-free if calculated with the standard rates provided by the IRS. However, if the rates are exceeded, the additional compensation will likely be subject to taxation.

Standard Mileage Reimbursement Rate

The standard mileage reimbursement rate is set by the IRS and helps businesses calculate the deductible costs of operating a private vehicle for work operations.

The rates are adjusted every year (typically in mid-December for the following year) and set as a benchmark for tax-free reimbursement. Employers aren’t required to follow them, but exceeding the rates will likely result in taxes incurred.

Here are the IRS mileage reimbursement rates for 2025:

• Business use. 70 cents per mile, which is 3 cents up from 2024.
• Medical and moving purposes. 21 cents per mile, which is the same as it was in 2024.
• Charitable driving. 14 cents per mile, which is the same as it was in 2024.

Since the rates and mileage reimbursement rules are subject to change, it’s essential to review them periodically to ensure proper compensation for your employees and avoid incurring unnecessary taxes. In general, the rates for business use change every year, while rates for medical, moving, and charitable purposes don’t change as frequently.

How to Calculate Mileage Reimbursement

To calculate mileage reimbursement, you typically multiply the total number of business miles driven by the rate included in the company’s employee mileage reimbursement policy. Most companies use the rate set by the IRS.

Here’s an example of a simple calculation when the company follows the IRS rates:

• The employee drove 350 business miles in a month.
• The company uses the IRS mileage reimbursement rate of $0.70 per mile.
• Mileage reimbursement calculation: 350 * 0.70 = $245.

Since the company is using the rate set by the IRS, it can claim a tax-free business mileage deduction of $245.

Let’s check out another example featuring a specific company mileage reimbursement rate:

• The employee drove 250 business miles in a month.
• The company uses its own mileage reimbursement rate of $0.90 per mile.
• Mileage reimbursement calculation: 250 * 0.90 = $225.

Since the company uses a rate higher than the one set by the IRS, the excess amount is taxable. As a result, the tax-free amount is $250 * 0.70 = $175, while the remainder ($225 - $175 = $50) is considered taxable income.

Is Mileage Reimbursement Taxable?

As we’ve already mentioned, mileage reimbursement isn’t taxable as long as a company uses the rate set by the IRS and pays it under an accountable plan.

However, an accountable plan must meet the following three key criteria:

1. Expenses covered must be clearly related to the business.
2. An employee must provide clear records of their travels (e.g., a mileage log) in a timely manner.
3. If an employee is reimbursed at a rate higher than the one set by the IRS, they will be taxed unless they return the excess.

If an employee's mileage reimbursement meets all of these criteria, the payments won’t be subject to taxes.

However, if even one of the criteria isn’t met, the plan is considered nonaccountable and the reimbursement is taxable. For example, if an employer offers a flat sum ahead of the trip, that’s usually considered an allowance, not reimbursement, and is taxable.

In that case, the IRS recognizes these payments as income, which makes them subject to taxation and withholding. As a result, the payments should be reported as wages and disclosed on Form W-2.

Lastly, if the reimbursement is at a higher rate than the one set by the IRS, only the excess amount is taxable.

Mileage Reimbursement Company Policy

Since, in most cases, employee mileage reimbursement isn’t legally mandated, it’s up to the company’s policy to include it and set the rules. A well-written policy should outline the rates, processes, and other regulations to avoid confusion among the workforce and potential disputes.

Here are some of the essential elements that a good mileage reimbursement company policy should have:

• Who qualifies. The policy should outline which employees are eligible for mileage reimbursement (e.g., field technicians and sales representatives).

• Reimbursable trips. Clearly describe which types of trips are covered by the reimbursement policy (e.g., travel to temporary worksites). It’s also critical to state which trips aren’t covered, such as the daily commute to and from an office.

• Reimbursement rates. The company needs to disclose upfront what rate it uses per mile, helping employees calculate how much they will get paid for a trip. The rate can match the IRS standard rate, but can also be lower or higher.

• Mileage tracking for payroll purposes. Employees need to know how to track the miles they travel and report them to get reimbursement. They need to know which information to include (e.g., date, destination, purpose) and how to do so (e.g., using GPS or odometer).

• Reimbursement schedule. The policy should also state when an employee can expect the reimbursement. For instance, they can receive it with their next paycheck or as a separate payment.

Do Self-Employed or Contractors Get Mileage Reimbursement?

Contractors and self-employed professionals can get mileage reimbursement, but there are some differences compared to the reimbursement for employees.

For starters, self-employed individuals can receive mileage reimbursement if the contract stipulates it, and this payment will not be taxable if it’s made under an accountable plan. The reimbursement must satisfy the same three criteria as for employees.

If the payment is made under these conditions, it won’t be reported on a Form 1099-NEC, as it is not considered compensation. However, since the self-employment mileage reimbursement is made under an accountable plan, it can’t be deducted as a business expense on the contractor’s tax return.

On the other hand, if the reimbursement comes from a nonaccountable plan, it is considered taxable income and will be reported on a Form 1099-NEC. The client will include the full reimbursement amount in Box 1 of the form, along with all the other fees for the contractor’s services.

In that case, a contractor must report this as gross income on their Schedule C (Form 1040) and may use one of the two deduction methods:

• The standard mileage rate, which involves multiplying the number of miles by the IRS rate, but requires choosing it in the first year the car is used for business.
• The actual expenses method, which involves tracking the costs of operating a vehicle for business use (e.g., gas, repairs, insurance, etc.) as deductible expenses.

How to Record Mileage Reimbursement on a Pay Stub or 1099

How to record mileage reimbursement on a pay stub or Form 1099 depends on whether it is taxable.

If the reimbursement is made under an accountable plan and is not taxable, there’s no need to display income or mileage on a pay stub or Form 1099. It also doesn’t have to be included on the employee’s Form W-2. Still, employers may choose to include it on a pay stub as a separate line or memo, helping keep the records clear.

On the other hand, if the reimbursement is made under a nonaccountable plan, it’s treated as taxable income. In that case, the amount needs to be included in the earnings section of a pay stub, as a part of the employer’s gross income.

The employee will be taxed on that income as if it were a regular wage. Moreover, it will appear in Box 1 of the employee’s Form W-2.

For contractors paid under a nonaccountable plan, their clients will report this on Form 1099-NEC, typically as part of the total compensation in Box 1.

Record Employee Mileage Reimbursement With Paystub.org

Paystub.org can help you maintain clear records and accurately display employee mileage reimbursement with our document generators. We offer several tools, including:

• Pay stub generator. Display reimbursement as income or as a note for record-keeping purposes with our generator.
• Form 1099 generator. Quickly generate Form 1099 for contractors.
• Form W-2 generator. Effortlessly issue Form W-2 with mileage reimbursement included.
• Invoice generator. Professionally bill your clients and include reimbursement if outlined in a contract.

Final Thoughts

Businesses that offer employee mileage reimbursement are more likely to attract talent and retain employees, as well as increase job satisfaction among their workforce. However, they need to have clear policies regarding these payments and approach them professionally to ensure fair compensation and tax compliance.

On the other hand, employees must be diligent intracking their miles and accurately reporting them to receive reimbursement. Failure to comply with one of the three key criteria will result in the payment being treated as a wage, subjecting it to taxes in the process.

To streamline your record-keeping and ensure accuracy, feel free to use our document builders at Paystub.org.

Employee Mileage Reimbursement FAQ

#1. Do companies have to use the IRS's standard mileage rate?

Companies don’t have to use the IRS’s standard mileage rate. However, if they exceed the rate set by the IRS, the excess amount paid becomes taxable, as that’s considered income and not reimbursement.

#2. Is attending meetings considered business mileage?

Yes, attending work-related meetings outside your workplace is typically considered business mileage. This also includes traveling from your office to a meeting with a client or to an off-site conference.

#3. Is mileage reimbursement required by law?

Mileage reimbursement isn’t required by federal law unless travel expenses would reduce the employee’s salary below minimum wage. Moreover, some states, such as California, Illinois, and Massachusetts, have laws that mandate mileage reimbursement.

#4. How do I report mileage reimbursement on my taxes?

You don’t have to report mileage reimbursement on your tax return if it comes from an accountable plan. However, if it doesn’t come from an accountable plan, it will be included as wages on your Form W-2, and you’ll report it as income.