When employees, self-employed, freelancers and rideshare drivers consider issues surrounding mileage reimbursement, one question that often arises is whether or not the reimbursement is taxable income. Mileage reimbursement is not considered income; therefore, it cannot be taxed. Payment given to employees as a reimbursement from mileage expense is not taxable as well, unless that reimbursement exceeds the mileage rate set forth by the IRS.
When mileage reimbursement IS NOT taxed
When meeting the requirements of mileage reimbursement, payment made to an employee is tax-free if the following criteria are met:
- The employee qualifies for the IRS standard mileage rate while that rate is being used.
- Employee reimbursement occurs under an accountable plan.
- The accountable plan must be based on services done for an employer for business, must be adequately accounted for, and must have excesses reimbursement returned within a reasonable period of time.
Accountable plans are identified and listed by the IRS on its website. It is recommended that those eligible for mileage reimbursement review other parts of the information hub, including information for employers, employees and self-employed. In addition, understanding how to properly log mileage information should be reviewed as well.
When mileage reimbursement IS taxed
Reimbursement that does not meet the criteria outlined in an accountable plan is considered income and, therefore, taxable. This means:
- Reimbursement that exceeds the IRS standard mileage rate is considered income and is taxable.
- Excess reimbursement that was paid but was not returned within a reasonable timeframe is taxable as income.
- Reimbursement not based on accurate or adequate records is taxable as income.
The method of reimbursement is less important than the amount that was paid as a reimbursement. Ensuring that mileage reimbursement meets the criteria outline in this article, as well as in other areas of this information hub, is important.