Whether you're an employee who uses your car to conduct business or a business owner who reimburses employees for mileage, the tax implications of this type of reimbursement can be confusing. Let’s discuss how mileage reimbursement counts as income for tax purposes and provide you with a few good tips for managing and tracking mileage reimbursement.
What is mileage reimbursement?
Mileage reimbursement is a system in which an employer pays an employee for the miles the employee traveled for business purposes. The amount that the employer reimburse is based on the IRS standard mileage rate, which is currently $0.565 per mile. In order to be eligible for mileage reimbursement, employees must keep track of their business-related travel and submit a request for reimbursement to their employer. Employers may choose to reimburse employees either weekly or monthly.
Some employers may also require employees to use their personal vehicle for business travel, in which case the employer would reimburse the employee for all business-related travel expenses, including gas, oil changes, and repairs. Mileage reimbursement can be a great way to offset the cost of business travel and make it more affordable for employees.
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Does mileage reimbursement count as income?
The answer to this question depends on the specifics of your situation. Generally speaking, mileage reimbursement is considered taxable income, as it is considered compensation for services rendered. However, there may be some exceptions depending on the country in which you reside or the company that you work for.
For example, in the United States, there is a standard mileage rate that can be used for tax deduction purposes. If you choose to use this rate, then your mileage reimbursement will not be considered taxable income. It is important to speak with an accountant or tax advisor to determine if your particular situation qualifies for an exception.
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Tips for managing mileage reimbursement in your business
Mileage reimbursement is a tricky but essential part of many businesses. Here are a few tips to help you manage it effectively:
First, make sure you have a clear policy in place that covers who is eligible for reimbursement and under what circumstances. This will help to avoid any misunderstandings or confusion down the road.
Second, keep careful records of all business-related travel. This includes dates, destinations, and purpose of the trips. Having this documentation on hand will make it much easier to process reimbursements.
Third, be sure to set a reasonable reimbursement rate that covers the cost of fuel and wear and tear on vehicles. If your rate is too low, employees may be tempted to fudge their figures in order to make up the difference. Conversely, if the rate is too high, it could end up costing the company more than necessary.
Fourth, consider implementing an electronic system for tracking and processing mileage reimbursements. This can save a lot of time and hassle in the long run.
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How to track mileage for reimbursement purposes
There are a few different options available for keeping track of your mileage for reimbursement.
One option is to use a mileage tracker app on your smartphone. This can be a convenient option, as you can simply enter your starting and ending location and the app will calculate the distance for you.
Another option is to use a GPS device that is specifically designed for tracking mileage. This can be a more expensive option, but it may be worth the investment if you do a lot of driving for work.
Finally, you can also keep a paper log of your mileage. This can be the most low-tech option, but it may be the most accurate, as long as you are diligent about recording your starting and ending points and the date of each trip.
No matter which method you choose, tracking your mileage is important in order to ensure that you are properly compensated for your travel expenses.
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