It is very usual that an employee in a company will use their personal vehicle to conduct business on behalf of their employer. All the distances covered for business purposes on the motor vehicle is calculated and it is called as the mileage calculation. There are a number of different ways an employee might conduct activity in this way, but the most important thing is to understand when mileage reimbursement is warranted and when it is not allowed.
The information that is inserted in this section is specifically for those employees who receive a paycheck from an organization as a full-time or part-time employment. You can also check for the similar information in this hub that is for business owners as well as those who are self-employed. This particular section is specifically created for the employees.
Employees may have various questions if they qualify for any reimbursement from their employer or not? Some of the questions that it includes are listed below:
If I drive a company car on behalf of the business, then if the mileage reimbursement will be provided or not?
If I make the use of my own vehicle for company business, should or will my employer provide me reimbursement?
What is the best way to track mileage when driving for business purposes?
Should I do the mileage expenses reporting each year for tax purposes?
For company-related mileage that is eligible for reimbursement, what qualifies?
I Drive a Car Provided By My Employer
If your employer is providing you the vehicle for various work- related purposes or activities, you are not eligible for tracking and reporting mileage expenses (outside of any tracking or reporting you or your employer might do strictly for internal purposes). You may be reimbursed for such expenses if you pay for gas, parking, tolls or any other related expenses.
It should be explained to you by your employer about the specifics regarding how you should be reimbursed for your expenses that are incurred while operating a vehicle owned by them. This is different and separate from mileage expense, which is for the purpose of drivers who own and operate a vehicle.
However, if an employer uses his own mileage rate then it is important for him/ her to keep in mind that it should not be higher than IRS mileage rates. Also, for recording each expense related to the travelling, employees must make the use of a proper mileage logbook.
I Drive a Car Owned or Leased By Me
You are eligible to be reimbursed for expenses incurred while conducting business, in case if you are the owner of a vehicle you drive in order to conduct business for your employer. It is important for the driver to install any mileage tracking app in order to perform the mileage calculation according to IRS mileage rates used by the employer for reimbursement.
There are two different ways by which your employer may easily handle reimbursement. The first one that you can use is to reimbursing you for expenses incurred while using your vehicle for business. The second, and generally more acceptable way, is to do the proper tracking and reporting mileage expenses. Mileage expense takes into account the overall costs associated with ownership of a vehicle.
If you make the use of a second method, mileage expense, the proper guidelines are provided by the IRS for mileage rate for business. It should be explained to you by your employer what the mileage rate to be used is. Anything at or below that IRS-recommended mileage rate can be reimbursed to the employee tax-free. Anything over the amount is considered income and subject to federal and state income tax.
Different Ways to Reimburse Employees For Transportation Expenses
As mentioned above, there are two options available for an employer, one is to choose to reimburse for general automobile expenses or second is to provide reimbursement based on mileage. There are other ways of ensuring employees are reimbursed for costs associated with using their vehicle for company-related activities.
Mileage allowance is also an option for the employees. This is the allowance that is usually paid to the employee in advance, as it is paid in the beginning of the month. It is done to cover any transportation expenses that an employee might incur. This is a challenging method of reimbursement that leads to an increase in tracking all receipts, ensuring that the expenses align with the allowance and that any allowance coverage is given back to the employer. Additionally, it is necessary for the employees to maintain a mileage log that is used to enter each expense of business travel with actual proof of receipts of expenses.
An employer and employee should always keep in mind that if the allowance total given to the employee is higher than what the IRS standard mileage rate would have been. After that the average must be reported as income rather than reimbursement.
Mileage Reimbursement is fairly a straightforward process. Employers, and employees, must be aware of the various variations that are used to this method. The first one is the standard mileage rate. The second one is the FAVR that stands for Fixed and Variable Rate.
Standard Mileage Rate
The standard mileage rate is one of the easiest and most straightforward ways of tracking and reimbursing employees for using their personal vehicles for activities that are related to your work. The IRS standard mileage rate is designed for making it a very easy and straightforward way for both the employer and employee.
An employer should keep in mind that it is not required to use the IRS standard mileage rate and he/she may use their own rate. If this is the case, any additional reimbursement made to the employee above the IRS rate is subject to income tax. Hence, it is said that it is important to keep the IRS rate in mind while fixing mileage reimbursement rate.
Fixed and Variable Rate (FAVR)
An employer may also choose to use a combination of a variable mileage rate as well as a fixed cost to reimburse for other items:
Variable rate that is used to cover variable costs, such as gas, maintenance, oil changes, etc.)
Fixed rate that is used to cover standard, month to month costs such as insurance, lease payments, depreciation, etc.)
The Importance Of An “Accountable Plan”
In order to ensure that the amount an employee is getting as the reimbursement amount is tax-free, there are various requirements of an accountable plan that an employer must meet. There are the various rules of an accountable plan that are determined by the IRS and include the below listed points:
Business connection is must for your expenses, it is important for you to have paid or incurred deductible expenses while performing services as an employee of your employer.
It is mandatory for you to adequately account to your employer for these expenses and it should be done within a reasonable period of time.
Also, you must return any excess reimbursement or allowance by keeping in mind about the reasonable period of time.
Recording of each trip that qualifies to be included for reimbursement is important and also it should be for a business purpose. The mileage for each trip must be adequately accounted for. There are various technology tools available that are affordable and easy to use. One of the best examples for such tools is the TripLog Mileage app. Finally, the IRS indicates that there must be the use of a “reasonable period of time” to track, submit and manage mileage expenses between an employer and employee and the timeframe for that is of 120 days. Specifically, the IRS states the below listed points on their website:
An advance will be received by you within 30 days of the time you have an expense.
Within 60 days,you adequately account for your expenses after they were paid or incurred.
Any excess reimbursement may be returned by you within 120 days after the expense was paid or incurred.
A periodic statement (at least quarterly) is given to you that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
Are There Any Non- Accountable” Plans?
Any reimbursement method that does not meet the required three rules that are set forth by the IRS to not meet the requirements of an accountable plan. Some additional guidelines are provided by the IRS here to help you to explain how employers and employees should account for expenses that fall within the requirements of being reimbursable.
The Best Way to Track Mileage
Using a tool such as the TripLog Mileage app is one of the easiest and most cost efficient methods for tracking mileage expenses. It is the app that is easily available to download on any smartphone. Employers can also make the use of various reimbursement plans via an intuitive dashboard for managing it easily. Not only this, but it also provides 100% accurate mileage calculation and easy maintenance of mileage logs!
What Counts As a Reimbursable Expense?
Employees who make the use of or drive their own vehicles in order to conduct actual company business are entitled to reimbursement. Do you want to know what actions are qualified for reimbursement? Actions such as driving to meet prospects or close sales deals, managing company printing at the print shop and other company-related activities usually qualify for reimbursement if an employee is using his own personal vehicle. But there are some activities such as commuting to and from a normal or regular work location, driving to and from lunch or picking up a friend in the middle of the workday are not meant to be reimbursed by the employer to his/ her employee. Hence, one must make the use of mileage log book to keep the mileage records for the exact coverage of business mileage to be paid off.