The mileage reimbursement is the most common type of reimbursement for business expenses. If an employee operates his or her personal vehicle for the business, the employer can reimburse this expense using the standard mileage rate and the number of miles driven.
The mileage reimbursement calculation is quite simple. The employer will multiply the number of qualifying miles driven with the standard mileage rate for business. The result is how much the employer needs to reimburse the employee for the mileage expenses.
While this sounds simple and all, there are rules for reimbursements. These rules must meet the accountable plan guidelines. As basic as it can be, the mileage reimbursements along with any other type of reimbursement must meet the following standards.
- The expense must have a business connection
- The expense must be substantiated to the employee within a reasonable period
- The excess reimbursement must be returned to the employer by the employee within a reasonable period of time.
An employer must reimburse an employee within a reasonable period of time so that the expense is covered and any excess amount given in reimbursements must be returned back to the employer. Again, the employee must return the excess amount given within a reasonable period of time.
2023 Mileage Reimbursement Calculator
First and foremost, the IRS hasn’t released the effective mileage rates for the 2021 tax year. The new mileage rates will be effective starting from January 1st, 2021, and will be used until the end of the year.
The business mileage rate is 57.5 cents per mile driven at the time of writing. This rate is also the same for mileage as the standard mileage deduction. Taxpayers who will claim mileage expenses on their federal income tax returns are also going to multiply the qualifying miles with this rate to calculate the deduction.
As for who can claim this deduction, it isn’t available to everyone. After the Tax Cuts and Jobs Act of 2017, only those who are self-employed can claim the standard mileage deduction. However, this isn’t mandatory as taxpayers can claim the actual expenses deduction rather than the standard mileage deduction.
Are employers required to reimburse employees?
There is no law that says employers must reimburse employees. This is completely up to the employer but not reimbursing employees for business expenses will make the business a lot less appealing to work at which can result in the downfall of employee motivation.
Where to report reimbursements?
The employee reimbursements aren’t taxable so they aren’t going to be counted towards the employee wages. Instead, the employer will report it on Form W-2 Box 12 using the code “L”.
Is mileage reimbursement mandatory?
Generally, no but your state may require you to reimburse employees for mileage. If you’re living in either one of the following states, you must reimburse employees for mileage. California, DC, Illinois, Iowa, Massachusetts, Montana, New York, Pennsylvania.