Difference Between Mileage Reimbursement & Car Allowance

A vehicle used for work may also qualify for tax deductions.

If you work in a position that requires frequent use of your vehicle, such as route sales or field service work, your employer may provide you with mileage reimbursement or a car allowance. Both options are designed to help you offset vehicle expenses, but they do so in slightly different ways.

Employer Mileage Reimbursement

When an employer offers a mileage reimbursement program, you are remunerated for the cost of work-related miles driven in your personal vehicle. Typically, you must keep track of how many miles you drive each day for your job, and your employer may require you to submit weekly, monthly, quarterly, or annual mileage reports. You may be reimbursed weekly as part of your regular paycheck, or your employer may issue a separate mileage reimbursement at specific periods throughout the year. Employers often pay for mileage around the Internal Revenue Service standard of $.55 per mile, according to Business and Legal Resources.

Car Allowance

A car allowance provides a lump sum payment on a regular basis. Most employers design a car allowance program to pay a specific dollar amount on a monthly basis. It could be anywhere from $50 to $500 per month depending on the employer's policies. The car allowance may cover vehicle expenses for a car you already own and use for business, or your employer may require that you apply the vehicle allowance toward the cost of a new vehicle specifically for business purposes.

Additional Reimbursements

In some cases, your employer may also offer additional reimbursements for vehicle-related expenses. You may qualify for additional reimbursements by submitting receipts for vehicle maintenance such as car washes, oil changes, and repairs. In addition, some employers repay employees for fuel expenses, road tolls, and parking fees. Check with your employer's policies to see if you qualify for any additional reimbursements related to the use of your vehicle for work.

Taxes

If you do receive either mileage reimbursement or a car allowance through your employer, you are required to report the totals on your income tax returns. Whether you must report the totals as income or employer expense reimbursements depends on how your employer reports the totals on your W-2 or 1099 income statement. Check with your tax preparer or accountant if you have questions.

References

• BLR: Mileage Allowance: What you need to know
• IRS: Publication 463 Travel, Entertainment, Gift and Car Expenses