How to Report Mileage Reimbursement Income on an Income Tax Return

If you use your vehicle in business and your employer reimburses you for all or part of your vehicle expenses, the tax treatment of the reimbursement depends on whether you are reimbursed through an accountable plan or not. In either case, it is important to keep good records of all your vehicle expenses and mileage as verification.

Difficulty: Moderate

Instructions

1. For reimbursement of any vehicle expenses and deduction of those expenses on your personal tax return, there must be a business connection and proper substantiation of the expenses (contemporary record keeping). The record must also include all miles and dates you used your vehicle for business purposes.

2. Understand the nature and requirements of an accountable plan. In addition to business connection and proper substantiation, there must be a written plan requiring that employees return to the employer reimbursed amounts in excess of actual expenses incurred within a reasonable time. If you receive any advance against expected expenses, they must be fairly estimated to not exceed the amount anticipated. If the plan meets all these requirements, you do not have to report the reimbursement on your personal income tax return.

3. Report non-accountable plan vehicle expenses and reimbursement on tax form 2106. You can either take a proportion of your actual expenses or the standard business mileage rate for the total business miles driven. On Part 2, Section A of the form, enter the date you began using your vehicle for business (date placed in service), the total miles driven during the year and the total business miles driven. Calculate the percentage of business use, and answer all of the other questions in this section.

4. Determine whether you will take the standard business mileage deduction (Part 2, Section B) or the percentage of actual expenses (Part 2, Section C). If you are considering actual expenses, you also need to calculate the depreciation deduction (Part 2, Section D). After calculating the better deduction, fill out the appropriate section of the form.

5. Go to Part 1, Line 1 of the form and enter the total deduction you have calculated. On Line 2, enter any parking fees and tolls you paid for business driving. Total all of these on Line 6.

6. Use Line 7 to enter the amount of reimbursement from your employer that was not included in your gross income on your W2. Subtract the total expenses from the total reimbursement. Any excess of reimbursement over expenses is additional taxable income. Report this amount on Line 7 of Page 1 on your personal tax return. If the expenses are in excess of the reimbursement, report the excess expense on Line 21 of Schedule A as an itemized deduction.

References

• Instructions for Tax Form 2106

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