While the level of trust varies in different company cultures, that’s probably the exact same information employers will want before reimbursing the employee. IRS guidance refers to this as an “accountable” plan.Īn IRS accountable plan requires employees to keep a log of where they’ve gone, the business purpose of the trip, and the number of miles they’ve driven, usually by recording odometer readings at the beginning and end of the trip. However, deducting the reimbursement from the employer’s federal taxes requires establishing an IRS-compliant reporting and recordkeeping system. Creating an IRS-compliant “accountable” planĬalculating the reimbursement to the employee is as simple as multiplying the miles logged by 56 cents. Keep track of employee reimbursements with a powerful expense reimbursement spreadsheet from Jotform. The law reduced corporate tax rates but eliminated the option for individual taxpayers to claim an itemized deduction for unreimbursed employee travel expenses. The reimbursement has been a way to fairly compensate employees after the Tax Cuts and Jobs Act passed in 2017. The reimbursement might seem like a windfall to an employee with a car that gets great mileage, but it all evens out (more or less) when it’s time to get new tires, pay for insurance, get a tune-up, and simply make the monthly car payment. ![]() With gas costing about $3 per gallon, driving a mile costs anywhere from 10–25 cents in gas alone, depending on how many miles per gallon the vehicle gets. The 56 cent per mile reimbursement is for more than just the cost of gas, even though that alone can be a big expense. But they’ll have to keep the same kinds of records that businesses are required to submit to deduct the reimbursements they give employees for using their own cars. People volunteering for charitable organizations can also deduct 14 cents per mile they drive in the course of their volunteer work. Individuals can deduct 16 cents per mile they drive for medical purposes, such getting to and from doctor visits. The mileage deduction is not just for on-the-job travel. That’s why most companies just reimburse for whatever the IRS determines to be the deductible per mile. However, if the employer reimburses less, the employee can deduct the difference from their taxable income, and if the employer pays them more, the employee adds that difference to their taxable income. The IRS’s rate is a suggested amount, and companies can reimburse more or less for a number of reasons. The IRS didn’t explain why the reimbursement declined, but the sharp decrease in gas prices caused by the pandemic likely influenced the change. In December 2020, the IRS issued - as it does around that time each year - the optional standard mileage rates for employees to calculate the deductible costs of using a car for business.įor 2021, the standard mileage rate for the use of a car (as well as vans, pickups, or panel trucks) is 56 cents per mile, a decrease of 1.5 cents from the rate for 2020. This option is fair to the employee and is generally far less expensive for the employer, but it does require careful tracking and recordkeeping to maximize potential tax advantages. ![]() While some employees do get a company car, it’s far more common for employers to reimburse staff for the miles they drive in their own cars at the rate determined by the Internal Revenue Service (IRS). Your options are to provide a company car - which is costly for the company but a nice perk for the employee - or reimburse the employee a set sum for every mile they drive their own car for work. ![]() If you’re the boss, you can’t expect them to drive their own cars and bring you receipts to reimburse them for the gas. And that usually means they need a car to get their jobs done. Some employees, such as sales or customer-support field staff, have to travel from one place to another during the ordinary course of their work.
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