Can I Deduct Mileage as a W2 Employee?

For most W-2 employees, the ability to deduct mileage on a federal tax return is no longer an option. This change stems from a shift in tax law that altered how unreimbursed business expenses are treated. While this federal rule is broad, specific exceptions exist for certain professions, and some states have not aligned their tax laws with this federal standard. The primary avenue for most employees to recover these costs has now shifted from a tax deduction to direct employer reimbursement.

The Federal Rule on W-2 Mileage Deductions

The Tax Cuts and Jobs Act of 2017 (TCJA) is the primary reason most W-2 employees can no longer deduct mileage. This legislation suspended the miscellaneous itemized deduction for unreimbursed employee expenses, a category that previously included business-related vehicle mileage. Before this change, employees could claim these expenses if they itemized deductions and their total miscellaneous deductions exceeded 2% of their adjusted gross income.

The suspension of this deduction is in effect for tax years 2018 through 2025. This change means employees who use their personal vehicles for work-related tasks cannot write off those miles on their federal tax returns, even if their employer does not provide any reimbursement.

Exceptions for Specific Employee Categories

A few specific categories of W-2 employees were carved out from the general suspension of the unreimbursed employee expense deduction. These individuals can still deduct their work-related mileage on their federal tax returns using Form 2106, Employee Business Expenses.

Eligible groups include:

• Armed Forces reservists
• Qualified performing artists
• Fee-basis state or local government officials
• Employees with impairment-related work expenses

To qualify, these employees must meet specific criteria defined by the IRS. For instance, Armed Forces reservists can deduct expenses for traveling more than 100 miles from home in connection with their service. Fee-basis officials are those compensated wholly or partly on a fee basis for performing services for a state or local government.

State-Level Mileage Deductions

The federal changes instituted by the TCJA did not automatically apply to every state’s income tax laws. While federal law prohibits most W-2 employees from deducting mileage, some states have not conformed to this provision. This means that in certain states, employees may still deduct their unreimbursed business mileage on their state income tax return. Taxpayers in these jurisdictions must navigate two different sets of rules. Because state tax laws are subject to change, employees should verify the current regulations, which can be found on the state’s department of revenue website.

Employer Reimbursement Plans

With the federal tax deduction largely unavailable, the most common way for employees to be compensated for business mileage is through an employer reimbursement plan. These plans fall into two categories: accountable and nonaccountable.

Under an accountable plan, reimbursements are not considered taxable income. To qualify as an accountable plan, the arrangement must meet three IRS requirements: the expenses must have a business connection, they must be adequately substantiated to the employer, and any excess reimbursement must be returned in a reasonable period.

If a reimbursement arrangement does not meet one or more of these requirements, it is considered a nonaccountable plan. All payments made under a nonaccountable plan are treated as taxable wages. This means the reimbursement amount is included in the employee’s gross income on their Form W-2 and is subject to income, Social Security, and Medicare taxes.

Mileage Recordkeeping Requirements

Maintaining accurate and detailed records is a requirement, whether you are seeking reimbursement from an employer or fall into one of the categories eligible to claim a deduction. The IRS requires that logs be “timely,” meaning they are recorded at or near the time of the trip; a weekly log is considered sufficient.

For each business trip, your log must document:

• The date
• The total miles driven
• The destination or location
• The specific business purpose of the travel

It is also a best practice to record the starting and ending odometer readings for the year. While a paper logbook is acceptable, many now use mileage tracking apps that use GPS to simplify the process and ensure accuracy.