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Mileage Reimbursement Requirements By State

Mileage reimbursement doesn't have to be complicated. We're here to help clear the air.
irs mileage requirements by state

Mileage reimbursement requirements can be an intimidating topic for many companies, whether at the small business or enterprise scale. Knowing what you are required to reimburse and when you are required to do it can be tricky as regulations can vary from state to state or region to region.

In this article, we’re going to briefly look at what mileage reimbursement is, what the United States requires at the federal level, and how some states are doing at the local level. With that said, this article should not be taken as tax or legal advice. Always consult your state’s local laws when making decisions that could affect your business.

Wait… What Does Mileage Reimbursement Mean, Exactly?

There’s no shame in starting with the basics!

Mileage reimbursement refers to any expenses incurred when an employee uses their personal vehicle to handle matters for their employer. This can range from meeting clients, going out to purchase office supplies, or doing anything else that requires an employee to use their personal vehicle to conduct business on behalf of their employer.

Note: If the employee is using a company vehicle, reimbursement is not needed, unless the employee uses their own funds for charges like gas, oil, etc.

Some potential expenses that can be covered by mileage reimbursement may include:

  • Fuel
  • Oil changes
  • Insurance costs
  • General maintenance
  • Car depreciation

Determining what rate to reimburse employees can be tricky. It all comes down to what’s fair. In the United States, the IRS tries to make it easier by offering a mileage rate that is based on “an annual study of the fixed and variable costs of operating an automobile” (IRS.gov). The rate for 2021 is $0.56 for business mileage.

This rate is optional, however. If you as an employer can adequately prove that the expenses your employees incur are less than the recommended IRS rate, you are able to pay them the rate that you think is fair. If you choose to do this, tread carefully, as this method can leave you liable to lawsuits. If you feel as though this rate won’t be fair for your region of business, you can use a fixed and variable rate (FAVR) program. Keep in mind, if your rate is bigger than one set by the IRS, your employee will have to pay taxes on the additional income.

For additional information on how mileage reimbursements work in the US, as well as other methods you could potentially take, please consult our comprehensive IRS Mileage Reimbursement Guide. For readers and company owners not living in the United States, be sure to check your government’s requirements on expense reimbursements as the following information may not apply.

irs mileage rate requirements in the usa

Federal Mileage Reimbursement Requirements

In the United States, there is no federal mandate requiring companies to reimburse their employees for mileage and travel expenses. Thus, in most states, if your employer demands that you use your personal vehicle for business purposes, they technically can do so without any promise of reimbursement.

The exception to this rule is if the expenses will cause an employee to earn less than minimum wage. For example, let’s say that you as an employer had an employee go pick up some paper from a nearby office supply store. If that employee is paid minimum wage, the cost of gas (and potentially other driving-related expenses) may result in them pocketing less than minimum wage.

Note: These reimbursement requirements don’t count for expenses such as commuting to and from work.

Should that be the case, you are required by federal law to reimburse them for those expenses that would cause their net pay to dip below minimum wage. Using a robust mileage and expense tracker in this type of scenario is paramount, which is why we designed TripLog from the ground up to be the last app your company will need to avoid legal penalties or lawsuits associated with mileage and expense reimbursement.

You Could Avoid Reimbursing… But You Probably Shouldn’t.

Most companies in the US will reimburse their employees to some extent, even those earning well above minimum wage. This is a decision one must make as a business owner or manager, taking into account certain somewhat intangible factors such as employee happiness and what the company is able to afford.

For instance, having an IRS-compliant expense reimbursement plan might help your company attract better, more highly-qualified employees, which may save your company additional money in the long run, despite costing you in the short term via the reimbursement costs. If you feel as though you need a detailed and easy-to-understand mileage and expense reimbursement manager, the free TripLog app will be your best friend.

Does My State Require Mileage Reimbursement?

As of 2021, only three states require by law that companies reimburse mileage for their employees – California, Illinois, and Massachusetts. Other states and jurisdictions like Iowa, Montana, New York, Pennsylvania, and Washington, D.C. may require companies to reimburse for certain other expenses, but not necessarily mileage.

Another potential complication is the fact that some of those other states may offer mileage reimbursement for state-level government employees. As always, if you’re unsure of what your state or jurisdiction requires to reimburse you, look into your local laws, or consider asking a tax professional or your HR representative for additional assistance. 

What Does This Mean for CA, IL, and MA?

If you own a business in any of those three states (California, Illinois, and Massachusetts), you are obligated to reimburse your employees for many expenses that they incur on behalf of your company. One of these expenses is mileage. Thus, it’s important for you and your business to keep accurate records of the expenses and mileage that your employees accrue.

Track Your Mileage and Expenses With Ease

Understanding which states or jurisdictions require mileage reimbursement is important. Even if you don’t live in a state that requires it, tracking employee mileage and expenses is definitely something any company should be doing. It can be a solid method of hiring high-quality employees and keeping them happy.

Fortunately, there are many great tools at your disposal, and an indispensable member of your financial arsenal should be TripLog. Our mileage and expense tracker is as robust and powerful as it is easy to use. You can try TripLog for free on iOS, Android, or on your desktop to start tracking your employee’s mileage and expenses.

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Mileage Reimbursement Savings Calculator

Number of drivers

Average miles daily per person

Number of trips daily

Cents-per-mile

RESULTS

Annual mileage reimbursement costs based on the numbers you provided.

Annual Mileage Reimbursement

50mi/day x 100drivers x $0.54 (5days x 50wks)

$675,000

This is the inline help tip! You can explain to your users what this section of your web app is about.

According to research, on average employees inflate the mileage by 25% when self reported.

Estimated Reimbursement Savings

25% x Annual Mileage Reimbursement

$168,750

People on average spend 2 minutes on manually recording trips.

Manual Entry Hours

2mins x 10trips/day x 100drivers (5days x 50wks)

8,334 hr

Taking national average $25 hourly rate.

Estimated Labor Savings

Avg. $25/hr x Manual Entry Hours

$208,334