Do employers have to reimburse for mileage?

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Do employers have to reimburse for mileage?


Employers often wonder if they are required to reimburse employees for mileage. 

If we go by the Fair Labor Standards Act (FLSA), the answer is no - the FLSA does not explicity require employers to reimburse employees for mileage (although the state of California does require it).

Even though mileage reimbursement is not required by federal law, most employers choose to do so anyway. It's an attractive benefit and, for employees who do a lot of driving like deliverymen and salespeople, an expected benefit.

 

The IRS Standard Mileage Rate

 

Because it's so common, the IRS releases an optional standard mileage rate each year based on the fixed and variable costs of operating an automobile. Most employment experts recommend that the IRS rate be used.

This is beacuse the IRS rate is a maximum rate employers can use for tax-free reimbursement. If you reimburse more than the IRS rate, you're required to treat the excess amount as taxable income to the employee (of course, you're free to reimburse below the IRS rate as well).

The amount of the mileage reimbursement can be excluded from an employee's gross income and therefore remain untaxed. Also, it benefits you as the employer because reimbursements are tax deductible business expenses.

 

Reimbursement Guidelines

 

Remember, reimbursements must meet these three guidelines:

1. Must be made for a deductible business expense.

2. The employee must substantiate the time, place, use, and purpose of travel by submitting a log of miles as well as receipts.

3. The employee must return any excess reimbursement.

The standard mileage rate for 2016 is 54 cents per mile for business miles driven. You can read more about the standard mileage rate for business here.

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