Understanding The Employee Mileage Reimbursements
IRS has defined mileage reimbursement rates for the employees using their personal vehicle for work. Most companies reimburse employees using the IRS rate. While companies define what rules they will pay, IRS auditing companies will dismiss mileage expenses if there are errors, no proper logs or expense justification.
When your business expands, your employees may be required to use their personal vehicles for work purposes. You need to reimburse them for the expenses incurred during business operations. In this regard, it is advisable to follow the guidelines set by IRS for mileage reimbursements. Here is a primer on these guidelines:
What Are Standard Mileage Deductions?
You can use the standard mileage deduction rate specified by IRS as your business mileage reimbursement policy. The standard rate set by IRS is meant for covering all the expenses incurred when traveling by a vehicle. It includes fuel costs, depreciation, oil changes, maintenance, and insurance. Using this rate, you can easily cover the expenses without keeping a detailed expense record of the same.
Is It Compulsory to Reimburse for Mileage?
Most of the employers think that they have to reimburse the mileage completely and compulsorily. In reality, they can reimburse more or less that the standard IRS rate if there is no compulsion from the state. There is a mileage form required for recording these expenses.
The Process of Reimbursement:
The individuals can claim a mileage expense by following the process of tracking and claiming the expenses related to the vehicles. In this case, the employer can’t claim other expenses like fuel costs or depreciation as a deduction. In the case when you reimburse a certain amount, the employees can deduct remaining expenses on their taxes. When reimbursements exceed the expenses, the excess amount must be reported as wages by the employee.
Tracking the Mileage:
As per IRS guidelines, it is essential for the vehicle owners to keep a log of mileage or the business miles traveled in a year. This log should be maintained in their vehicle by recording the trip date, mileage travelled, address and purpose for deduction claim. Also, the employees need to fill a mileage form with the details of every business-related trip.
In the form T777, there is a specified area for Calculation of Allowable Motor Vehicle Expenses where you should enter these amounts.
What Types of Vehicles Qualify for This Deduction?
Basically, there are two types of vehicles that qualify for deductions under IRS guidelines. They include passenger and motor vehicles. The number of deductions is largely affected by the type of vehicle used. It can be a passenger vehicle or van owned or leased by an employee. Here, you should know that passenger vehicles do not include ambulances, police, emergency response vehicles, funeral vehicles, etc.
If you are looking for a mileage app that can automate this process, the author of this article suggests Milecatcher.
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