Is Mileage Pay Taxable?
Understanding the Internal Revenue Service's (IRS) rules and regulations regarding mileage pay can put a little extra money in your pocket. According to RedeemingRiches.com, deductions regarding mileage are one of the most commonly missed when filing taxes. Even if you are reimbursed for your travel, you may still be able to take a deduction.
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Advances
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Many employers whose employees travel frequently will provide an advance payment to cover any costs associated with travel. According to the IRS, if the employer chooses to do this, the following rules must be observed: there must be a reasonable time frame from when the advance is paid, when the travel takes place, and when the employee documents the travel to the employer; additionally, the size of the advance payment must be in line with the estimated expenses. If these rules are observed and any excess is returned to the employer in a reasonable time frame, these advances are not considered wages and are not subject to taxes. However, if the employee does not document the mileage or return any excess in a timely manner, the advance is considered taxable income.
Reimbursement
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As of July 1, 2011, the standard mileage rate is 55.5 cents per mile. If your employer reimburses you at that rate or lower for business travel, then that reimbursement is not considered income. If your employer reimburses you for travel that is not related to business, including any commuting expenses, then those payments are considered income and subject to employment and income taxes. You are also required to document any business travel to the employer, including the date(s), the purpose of the trip and where you traveled. If for some reason your employer offers you reimbursement and you choose not to be reimbursed for your travel, then you are eligible to claim any travel expenses on your own tax return.
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Reimbursements Less Than the Federal Rate
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If your employer reimburses you at a rate lower than the federal rate or if the federal rate increased without your employer's knowledge, then you are able to deduct the difference between the federal mileage rate and the reimbursement paid by your employer if you itemize your deductions. The two forms needed to complete this deduction are Schedule A and Form 2106.
Excess Reimbursements
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If the federal rate decreases without your employer's knowledge or you are simply reimbursed at a higher rate than set by the IRS, then any monies received are considered wages and subject to employment and income taxes. Any excess reimbursement, including the nontaxable and taxable amounts, should be reported on your W-2. Box 12, code L will show any amount paid up to the federal mileage rate. Boxes 1, 3 and 5 will show any excess reimbursement. If you wish to avoid this additional taxable income, then any excess payment must be returned to your employer within a reasonable amount of time.
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