If you’re a mobile employee who uses your personal vehicle for work, you are probably getting reimbursed by your employer. You may be wondering if that reimbursement is taxed or if all of it goes back into your pocket.
Generally, mileage reimbursement is not taxed as income. However, there are specific scenarios when this rule can be broken. Here’s everything you need to know on whether mileage reimbursement can be taxed as income.
When Mileage Reimbursement IS NOT Taxed
Your reimbursement is tax-free under these conditions:
- The company is using the IRS standard mileage rate (and employees qualify for reimbursement)
- The reimbursement happens under an accountable plan
To be considered accountable, the reimbursement must be based on services done for an employer (that is to say, for business purposes). In addition, it should be adequately accounted for, and employees should return any excess reimbursement within a reasonable amount of time.
The IRS explains the requirements for an accountable plan on its website. For more specific information related to your company type, see the appropriate page in this guide.
When Mileage Reimbursement IS Taxed
If your mileage reimbursement does not meet the IRS accountable plan requirements, it will be taxed as income. Here are some specific instances where reimbursement is taxed as income:
- If your reimbursement exceeds the IRS standard mileage rate, it is taxed as income.
- Any excess reimbursement that employees did not return within a reasonable amount of time is also taxed as income.
- If the reimbursement was not based on adequate records, it could be taxed as income as well.
As long as your mileage reimbursement is less than or equal to the IRS standard mileage rate and follows an accountable plan, the reimbursement will not be taxed.