Some jobs require people to use their personal vehicles for business purposes. If you require your employees to do this, you’ll want to know all about mileage reimbursement rates and laws to make sure you’re staying compliant.
In this overview, we’ll explain all the twists and turns of mileage reimbursement in 2023 so you can decide what to do for your employees as they zip around town for business reasons.
What are the 2023 mileage reimbursement rates?
IRS Form 720, the Quarterly Federal Excise Tax Form, ExplainedFinances and Taxes
Each year, the Internal Revenue Service (IRS) sets a standard mileage reimbursement rate so contractors, employees, and employers can use them for tax purposes related to business travel. This rate applies to both cars and trucks and fluctuates year by year.
For 2023, the standard IRS mileage rates are:
- 65.5 cents per mile rate for regular business driving.
- 22 cents per mile for medical or moving work.
- 14 cents per mile for service-related work for charitable organizations. (This has remained the same for the last few years.)
Most companies or small business owners use the business rate (65.5 cents) as their holy grail when crafting their travel reimbursement policies.
Do you have to follow these IRS mileage reimbursement rates exactly? Not quite, but we’ll explain more below.
Do I have to reimburse my employees for driving their cars?
The short story:
- Possibly. You may be required to, depending on which state you live in and whether your team earns minimum wage.
- Reimbursing them can help you pay less in taxes, since reimbursements are a deductible business expense.
- It can also help keep your team happy, since they won’t have to dig into their own pockets for business-related work expenses. Employee retention for the win.
- You can only reimburse your employees for the number of miles they drive to and from specific work duties. That means regular commutes to and from work are not considered business mileage.
The long story:
There is no federal law that says you need to pay your team for driving their cars for business use. However, your state laws may require you to do so.
For example, California and Massachusetts both have laws that say companies have to pay their employees for business expenses like mileage. Check out your state’s labor law website to ensure you’re following the letter of the law.
Do some of your employees who travel for work make minimum wage or something close to it? Then there’s another thing to note from the Fair Labor Standards Act: If your team member’s work-related travel expenses dip their earnings below the applicable minimum wage, you’re responsible for making up the difference.
Even if your particular state doesn’t require employee mileage reimbursement, it can be a good idea to do it anyway since it’s a pretty standard business practice. Folks who use their personal cars for work tasks generally appreciate getting paid back since gas, insurance, and repairs are out-of-pocket expenses that don’t come cheap.
Should I use the standard IRS mileage rate in 2023?
Most companies do. However, the federal mileage reimbursement rate is merely a recommendation. You can reimburse your employees more or less as you wish. Just know that if you use a rate that exceeds the federal standard, that excess would be taxable for the employee.
Alternatively, some companies opt to implement a fixed and variable rate (FAVR) program to enhance a mileage reimbursement policy. Fixed costs include insurance, registration and license fees, depreciation or lease payments, and personal property taxes. Variable operating costs cover the cents-per-mile rate, which is inclusive of vehicle expenses, such as gas, oil, tires, and routine maintenance and repairs.
What were the mileage reimbursement rates in past years?
Here is how reimbursement rates for mileage compare to the rates set by the IRS in years past:
|Per mile rate for regular business driving||65.5 cents||56 cents||57.5 cents|
|Per mile rate for medical or moving work||22 cents||16 cents||17 cents|
|Permile rate for service-related work||14 cents||14 cents||14 cents||14 cents|
How do mileage tax deductions work?
Employees who track mileage to and from specific work obligations (or any of the other tax-deductible destinations mentioned above) can deduct that mileage using the IRS deduction rates or the actual expenses of using their own vehicles.
Your team can chronicle everything by using one of the many mileage tracking apps out there as a logbook, or just a good old-fashioned spreadsheet as a mileage log to record odometer readings.
Can all of my employees deduct their mileage expenses?
Your employees can’t use the business standard mileage rate after claiming a Section 179 deduction for that same vehicle. They also can’t use the business rate for more than four vehicles at the same time.
And unfortunately, as we mentioned earlier, they can’t deduct their commute, as nice as that would be. (You could, however, minimize your team’s commuting headaches by offering commuter benefits.)
How do I reimburse my team?
If you’re paying back your team, you can use expense-tracking software to pay folks every few weeks or months for business miles with the reimbursement amount you choose.
Set a standard rate, have employees enter their company mileage, and calculate how much you owe them for total number of miles. You could also cover them for tolls and parking fees paid on business trips, or you may choose to leverage a FAVR program, which would integrate variable costs alongside fixed costs.
However you approach your mileage reimbursement policy, you can then pay employees back for all approved costs on their expense reports through your payroll software. For ease, you could even have them use a corporate credit card that connects with that software.
And there you have it—your playbook for mileage reimbursement. With this guide in your (mental) dashboard, you’ll be able to stay compliant and keep your company moving and grooving.