Mileage reimbursement is a payment that your employer makes to you in compensation for business use of your vehicle. Mileage reimbursement is based on a standard figure that the IRS announces each year as the amount it will allow businesses to write off on tax forms for use of company vehicles and also for the purpose of compensating employees for business miles.
What Mileage Reimbursement Covers
The standard mileage reimbursement covers gas, maintenance, repairs and insurance for your vehicle. Because you only collect the standard mileage rate for the work related miles you drive, these payments are not meant to cover the entire cost of owning and operating your vehicle, but rather the portion of these expenses that you incur through work related driving.
What Mileage Reimbursement Does Not Cover
The mileage reimbursement allowance is designed to compensate you for the cost of maintaining and operating your vehicle, but some vehicle expenses are incurred separately, and you can be separately compensated for them. These include tolls, as well as parking expenses such as meters, garages and daily and monthly car parks. In addition, fees for licensing a vehicle are not covered by the mileage reimbursement allowance, so you may create a separate arrangement with your employer to compensate you for these expenses.
Is Mileage Reimbursement Taxable?
The IRS does not treat mileage reimbursement as income because it is intended to compensate you for an expense you incur, rather than paying you for work that you do. You are not required to declare mileage reimbursement payments from your employer on your tax returns. This is the case even if you come out ahead on your mileage reimbursement payments, such as if you have a reliable vehicle that requires little maintenance or a fuel efficient vehicle that requires little gas.
How Does the IRS Calculate the Standard Mileage Reimbursement Rate?
The IRS calculates the standard mileage reimbursement rate based on the projected average cost of operating a vehicle during the calendar year in question. These projections take into account the average cost of gas, insurance and auto repairs. When gas prices rose precipitously in 2005, the IRS raised the standard mileage rate from 40.5 cents per mile to 48.5 cents per mile, and then lowered it in 2006 to 44.5 cents per mile. As of 2011, the standard mileage allowance is 51 cents per mile.