IRS Regulations for Employee Business Mileage Reimbursement
Many employers will reimburse you for all or part of the expenses you incur when you use your car in the course of your work. Employee business mileage reimbursement is not considered compensation by the IRS and therefore is not taxable. The IRS does set a maximum amount per mile for mileage reimbursement, which is adjusted each year. You must follow IRS regulations for reporting business mileage or risk forfeiting the nontaxable status of the reimbursements.
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Definition
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An employee can receive nontaxable business mileage reimbursements only for driving that is related to work. Commuting to and from work is not considered business mileage. Driving to a business meeting or to see a client would all qualify for reimbursement but must be kept separate from personal use. For example, if you are returning home from a business trip and stop to do some shopping, your driving from that point on is considered personal use. Business mileage reimbursements apply to vans, SUVs and light trucks as well as cars.
Accountability
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Employees must keep records that satisfy IRS accountability standards. One method is to purchase a driving log at an office supply store and keep it in your car. A business mileage log entry must state the initial and ending odometer reading for the trip and miles driven. The entry for a trip also needs to include the date, the purpose of the trip and where the vehicle was driven. Record the odometer reading for the first and last day of the year you use a vehicle for business purposes.
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Amount
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Each year the IRS sets a maximum mileage reimbursement amount based on current vehicle operating costs. For example, the allowance for 2011 was 51 cents per mile. Reimbursements up to this figure are nontaxable. If an employer elects to reimburse employees at a lower rate, an employee can take the unreimbursed amount as a tax deduction. Employees also have the option of keeping track of their actual expenses and taking those as a tax deduction (minus any reimbursements). If you plan to keep track of actual expenses, you should keep receipts for gas and repairs as well as records of payments of loan interest, insurance and other driving-related expenses.
Other Rules
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There are a few other rules that must be kept in mind regarding business mileage reimbursements. It's the employee's responsibility to provide mileage records to an employer within 60 days of the date the miles were driven, or 30 days if the employer advanced reimbursement money. Failure to submit the required records (such as a copy of the employee's mileage log) in a timely manner may result in reimbursements being treated as taxable compensation. Also, as of 2011 vehicles used for hire, such as taxis, can qualify for nontaxable mileage reimbursements.
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References
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