IRS Guideline for Mileage Reimbursement

IRS guidelines address the costs of owning and operating a personal vehicle for business purposes.

A worker who uses a personal vehicle for business travel may receive reimbursement for the mileage expense. To avoid the necessity of claiming the reimbursement as income, follow IRS guidelines for amount and record-keeping. IRS reviews the allowable amount each year and updates the limits as needed.

Identification

The IRS defines mileage reimbursement as the amount given back to an employee to compensate him for the use of his personal vehicle on behalf of his employer. Reimbursement differs from a mileage deduction taken by someone who is self-employed or not compensated by his employer for business mileage on his personal vehicle.

Misconceptions

IRS does not mandate the amount an employer pays an employee as recompense for business mileage. Instead, IRS sets the maximum that can be reimbursed without tax liability.

The allowable amount does not increase automatically each year. An independent company conducts an annual study of the costs of owning and operating a vehicle and issues a report. IRS uses the report to determine whether an adjustment is appropriate and, if so, how much.

Significance

Many companies use the IRS amount to determine their rate of compensation to employees for business mileage. Others set their own rates. Any reimbursement in excess of the IRS amount becomes taxable income for the employee.

Benefits

Employers can refer to the IRS figures to determine whether they are giving fair mileage reimbursement to their employees without undertaking the expense of a study themselves.

Expert Insight

In December 2009, IRS announced a reduction to the allowable amount for 2010 from the previous year's 55 cents per mile to 50 cents per mile. The reduction reflected reduced amounts in several of the costs of automobile operations, including depreciation and insurance. Fuel costs did not decrease, according to Bloomberg.com.

References

• IRS: Administrative, Procedural, and Miscellaneous
• IRS Announces 2010 Standard Mileage Rates
• Bloomberg.com: IRS Decreases 2010 Business Mileage Tax Deduction by 9 Percent