How Much Are Employees Reimbursed for Using Their Own Car?

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How much can you get reimbursed if you drive your own car for work? It depends on your employer and the law in your state. Federal law doesn't require employers to pay for an employee's mileage and travel expenses unless the expense would drop the employee's pay rate below minimum wage. Some states require reimbursement for mileage or other business expenses.

Many employers do reimburse employees who use their own vehicles for work. Employee reimbursement for using your own automobile will vary somewhat by employer and sector, but most organizations compensate employees at approximately the Standard Mileage Rate set by the Internal Revenue Service (IRS).

Key Takeaways

  • Many employers reimburse employees for vehicle expenses, but federal law doesn't require reimbursement.
  • Some states require mileage reimbursement. Check your state department of labor website for details.
  • Effective July 1, 2022, the standard mileage reimbursement rate for business travel is 62.5 cents per mile.
  • Employers may also reimburse employees at a flat monthly rate or for vehicle expenses.

Standard Mileage Rate

For the first half of 2022, the Standard Mileage Rate was set at 58.5 cents a mile (up from 56 cents per mile for 2021). Effective July 1, 2022, the standard mileage rate for business travel is 62.5 cents per mile.

This fixed, standard rate incorporates the cost of insurance, registration, gas, oil, and maintenance. For someone who drives a lot for work, this can result in a significant deduction.

Company Mileage Reimbursement Rates

Most employers will reimburse at the Internal Revenue Service rate since they can deduct up to that amount as an expense when they file their corporate income tax return, though there are other complex tax formulas that employers can use. When qualified workers are difficult to find during economic expansions, employers are more likely to provide competitive rates of reimbursement.

The IRS requires reimbursement payments to be made separately from salary, with no taxes withheld. Some employers will, therefore, process expense payments through the accounts payable system to keep them separate from payroll and to maintain compliance with IRS laws.

Government Employee Reimbursement

Federal government employees are reimbursed at the Privately Owned Vehicle (POV) mileage reimbursement rate set each year by the General Services Administration (GSA) based on research conducted by an independent consulting firm regarding current costs for utilizing a vehicle.

The POV rate is .625 per mile effective July 1, 2022.

Note

Government employees will always be reimbursed at exactly the GSA rate if the use of a privately-owned car is authorized or when no government vehicle is available.

Fixed and Variable Rate (FAVR) Reimbursement Programs

There are alternatives to mileage reimbursement as ways for employers to compensate employees for business-driving expenses.

Employers may reimburse employees under a Fixed and Variable Rate (FAVR) reimbursement program, in which employees are reimbursed for fixed costs (such as insurance, taxes, and registration fees) and variable vehicle expenses (such as fuel and maintenance). The reimbursements are tax-free to employees if certain expense-accounting requirements are met.

Another option for employers is to provide employees with a flat car allowance for using their vehicle on the job, such as $500 per month, to cover the cost of fuel, wear and tear, tires, repairs, and more.

Expense Reimbursement Requirements

You'll need to provide a mileage log, gas receipts, and documentation of any other allowable expense receipt related to your car if you require mileage reimbursement. Without detailed records, your expense report may get rejected. Or worse, your employer could potentially take disciplinary action if they think your claim might be fraudulent.

Note

Many employers require recordkeeping, just like the IRS. Don't attempt to estimate your mileage, as that might violate your employer’s policies.

Keeping a pen and paper in your car is one method, albeit a tedious one; a better choice is a mileage tracking app that automatically tracks your trips in a contemporaneous log that you can print or download. It's an efficient way to keep track of mileage, start- and end-points, and the business purpose for the drive to include with your expense report.

Taxes on Mileage Reimbursement

Mileage reimbursements are considered tax-free disbursements by employers as long as they are documented and don’t exceed your actual expenses.

Frequently Asked Questions (FAQs)

When can I deduct mileage expenses on my tax return?

Individuals who own a business or are self-employed and use their car for business can deduct vehicle expenses on their tax returns. Some employees who use their car for work can no longer take an employee business expense deduction.  Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials can still deduct unreimbursed travel expenses. They can use the standard mileage rate or deduct the actual expenses they incur.

Can I deduct my expenses when I use my vehicle to travel for work?

Business travel deductions are available to employees who must travel away from their tax home or main place of work for business reasons. In order to qualify for a deduction, the travel period must be substantially longer than an ordinary day's work.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Code of Federal Regulations. "Part 531 - Wage Payments Under the Fair Labor Standards Act of 1938."

  2. Triplog. "Mileage Reimbursement Requirements By State."

  3. Internal Revenue Service. "IRS Issues Standard Mileage Rates for 2022."

  4. Internal Revenue Service. "IRS Increases Mileage Rate for Remainder of 2022."

  5. Internal Revenue Service. "Fringe Benefits."

  6. U.S. General Services Administration. "Privately Owned Vehicle (POV) Mileage Reimbursement Rates."

  7. Internal Revenue Service. "Rev. Proc. 209-54," Pages 10–12.

  8. Internal Revenue Service. "Here’s the 411 on Who Can Deduct Car Expenses on Their Tax Returns."

  9. Internal Revenue Service. "Here’s What Taxpayers Need To Know About Business Related Travel Deductions."

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