IRS Mileage Rate and Reimbursement Rules 2024

Sometimes buying company vehicles or delivery vans isn’t a feasible move. If you need your employees to do some driving on behalf of your business, reimbursing them for their mileage can be a more economical solution. The IRS agrees, and they create annual rules for maximum reimbursement that employers or self-employed individuals can deduct from their taxes.

A mileage reimbursement policy can keep things simple, and you may be able to deduct a portion of your reimbursement from your business taxes. You may have a few important questions. Does mileage reimbursement include gas? Is there an upper limit for paying mileage to employees? Here’s how IRS rules impact mileage rate and reimbursement for your employees and what it means for your taxes.

What Are the IRS Standard Mileage Rates for 2024?

Mileage reimbursement rates vary depending on the category of trip someone is making. The IRS recently issued new guidelines for preparing income tax returns. IRS mileage reimbursement rules can change annually if the IRS sees fit to update or adjust mileage reimbursement rates. Remember to check for new guidelines next year.

As of 2024, the guidelines are as follows:

Business standard mileage rate: 65.5 cents per mile
Trips made in service of a charitable organization: 14 cents per mile
Medical care trips and moving trips for qualified active-duty members of the armed forces

There is no official law that states that employers must reimburse their employees at a specific rate for mileage. The only exception is that reimbursement is federally legal if fuel costs would cause an employee to take home less than minimum wage. If a fuel expense is mandatory and it significantly impacts an employee’s take-home pay, employers are required to compensate for the difference either by raising wages or providing reimbursement.

Reimbursement is a (typically) voluntary step that employers take simply because it’s the right thing to do. Employees would feel less inclined to work for a company that required them to drive around while putting wear and tear on their personal vehicles and footing the gas bill themselves.

Employers may reimburse employees more or less than IRS-calculated rates if they so choose. Review your current company policy on mileage reimbursement and make a determination on its sufficiency. It also helps to have your human resources team speak with your employees about your mileage reimbursement policy to determine if they feel it’s working for them.

What Factors Influence These Rates?

The IRS performs an annual study to determine the average amount of business miles traveled in the previous year when calculating mileage rates for the current year. These calculations are strictly based on raw mileage data and national averages.

Mileage reimbursement averages don’t account for things like fuel costs by region. Gas is more expensive in some areas of the country — fuel prices tend to be lowest in places like the Gulf Coast of the eastern United States and can be as much as twice as high on the West Coast. Gas prices will also fluctuate significantly through the year, and mileage reimbursement doesn’t factor in these important variables.

Other important factors, like vehicle maintenance and wear and tear, aren’t considered by the IRS when establishing a reimbursement rate. Business travel can wear down your tires. Every vehicle will need an oil change eventually. Repairs and replacements necessary for maintaining a vehicle are considered operating expenses, which is a separate category from mileage rates.

How Does the IRS Calculate Mileage Reimbursement?

The IRS calculates a mileage reimbursement rate every year. The IRS uses the averages reported in the previous year’s data to calculate a rate they deem fair and realistic based on the amount of reimbursable trips employees around the country make as a part of their job duties. Your employees may travel significantly more or significantly less than the national average.

Mileage reimbursements typically rise each year to match the costs of fuel. Most employers use the IRS-calculated mileage reimbursement rate as a benchmark for their company employee mileage reimbursement policy, but employers are free to calculate their own figures and averages based on localized information.

What Are Standard Mileage Deductions and Actual Expenses?

There are two ways to calculate mileage for your taxes. The first method is to use the standard mileage deduction and deduct the annual amount per mile from your taxes. The second method is to use actual expenses, where all eligible vehicle-related expenses are calculated.

You’ll arrive at two different figures when you use these methods. Most businesses prefer to use the method that yields the greatest tax deduction because it’s a good business decision to reduce business tax liability as much as possible.

Note that businesses may not be able to utilize the actual expenses method the employee owns and is responsible for maintaining the vehicle they use to make business trips. If you aren’t responsible for changing the oil, replacing the tires, or paying the lease on the vehicle, you can’t claim such expenses as your own.

Standard mileage deductions are often best for businesses. Actual expenses will yield a higher deduction for self-employed individuals who use their vehicle as a primary means of income, like people who drive for rideshare or delivery services.

How Do Legislative Changes Affect Mileage Reimbursements?

Legislative changes that will go into effect at tax time next year may increase the threshold for business mileage reimbursement to 67 cents per mile. There are also changes to the Fixed and Variable Rate (FAVR) and fleet program that increase the maximum allowance for deductible business vehicles.

Businesses will not be able to utilize these changes on the tax filings they’re currently preparing, but they can use these announcements to shape their plans for the next year. Better mileage reimbursement may change the way that employers reimburse employees or change the frequency at which they encourage employees to use their own vehicles for business purposes.

The higher maximum allowance for FAVR and fleet program vehicles may give employers a reason to consider purchasing a company vehicle (or several) if they anticipate that the need for business-related travel may increase in 2024.

Who Is Eligible To Use the IRS Mileage Rates?

IRS mileage rates are often utilized by self-employed individuals, primarily if a significant part of their job revolves around their vehicle. In some cases, utilizing the actual costs of operating a vehicle instead of the IRS mileage rate deduction will yield a more favorable tax deduction.

Employers can use IRS mileage rates to reimburse employees who are asked to drive for business-related purposes — daily commutes don’t typically count as eligible miles.

Employers who ask employees to do any of the following things can reimburse their employees and deduct the total amount from their annual taxes:

Visiting a client or a customer for business purposes
Traveling between company offices, hubs, or headquarters as a part of their job duties
Traveling to a remote work location or alternative office on a temporary basis (i.e. if the normal office is closed for health or safety reasons)
Traveling to business meetings held at a location outside of their normal workplace
Delivering something to a client or a customer as part of normal work duties

How Do You Deduct Mileage on Tax Returns?

Form 2016 is used for calculating mileage deductions. The form provides specific instructions for how to accurately calculate a deduction. Multiplying the number of miles by the mileage rate provided by the IRS will give you the total maximum deduction you’re qualified to take.

How To Track Your Mileage

You can’t deduct your mileage unless you’ve accurately kept track of mileage throughout the year. Unless the vehicle in question is exclusively reserved for business use, it will likely accumulate more personal miles than deductible miles. You’re only allowed to claim business miles, which means you need an accurate way to differentiate personal use and business travel

The IRS suggests that people who intend to track mileage should photograph or record the readout on their odometer before and after they’ve completed a business-related trip. Recorded information can be used to make an accurate mileage log that accounts only for business mileage. Taylor Fike, Partner at Fike Advisors and Expert Contributor for Mosey, explains that “Depending on your industry, there may be restrictions on certain mileage tracking. For example, your commute to work does not count toward deductible mileage. However, if you are leaving your home for a client meeting outside of your office, then going to work, those miles can be deductible.”

If you’re tracking mileage for an employee, you can use a map app to calculate the total distance between their start point and end point for the trip. Use that calculation to form a basis for mileage deduction. Remember that the IRS won’t take serious issue with underreporting total mileage, but overreporting a deduction can have consequences. It’s best to be conservative in situations where an educated estimate is necessary.

How Can Businesses and Self-Employed Individuals Manage Mileage Reimbursements?

Accurate recordkeeping is the most important part of managing accurate mileage deductions. It’s easier to keep accurate records when a vehicle is used exclusively for business purposes.

Given the higher maximum allowance for deducting fleet vehicles, some businesses may find it to be worthwhile in the long run to purchase at least one vehicle specifically for business use. Contemplate the needs of your business and make a decision that works best for your unique situation.

If you’re an employee or a self-employed person, you might find it helpful to install a trip log app on your smartphone that will allow you to record dates, times, and total mileage of business trips. You can use the log generated by the app to make it easier to complete your mileage reimbursement paperwork when tax time comes around.

Navigate Reimbursement Rules With Mosey

Compliance is important for businesses of all sizes. Compliance keeps you on the right side of the rules and regulations that allow your business to operate, and it also can help you find the tax cuts you need to make running your business more economically efficient.

Mosey provides an automated compliance platform that helps business owners stay on track. Automations help you keep track of tax and licensing requirements vital for the continued success of your business. Focus on your daily operations and allow Mosey to support you in the background. Schedule a demo with Mosey to learn how our solutions may benefit your business.