Can W-2 Employees Deduct Mileage on Taxes?
Recent tax law changes suspended the federal mileage deduction for most W-2 employees, but options may still exist based on your state, profession, or employer.
For most W-2 employees, the ability to deduct mileage on federal taxes is no longer an option due to the Tax Cuts and Jobs Act (TCJA) of 2017. The law suspended deductions for unreimbursed work-related expenses, including business mileage, for individuals who receive a Form W-2. This change does not affect the rules for independent contractors or self-employed individuals, who can still deduct business mileage.
The General Rule for Federal Taxes
The TCJA suspended miscellaneous itemized deductions that were previously subject to a 2% of adjusted gross income (AGI) floor. This suspension affects tax years 2018 through 2025. During this period, employees who use their personal vehicles for work and are not reimbursed by their employers cannot claim those mileage costs on their federal tax returns.
The change simplified the tax code but removed a deduction for employees with significant driving expenses, such as outside sales representatives or service technicians. Unless Congress acts to change the law, this provision is set to expire, and the deduction could be reinstated for the 2026 tax year.
Exceptions to the Federal Rule
A few specific categories of W-2 employees were exempted from the suspension and can still deduct unreimbursed mileage as an adjustment to income. One such group is Armed Forces reservists who travel more than 100 miles from home in connection with their service. Another exception applies to qualified performing artists who meet specific criteria regarding employers, wages, and related business expenses.
The final exception is for fee-basis state or local government officials who are paid in whole or in part on a fee basis for their public duties. These narrow exceptions mean the vast majority of the workforce remains ineligible.
State-Level Mileage Deductions
While the federal deduction for employee mileage was suspended, tax laws at the state level did not uniformly adopt this change. Several states continue to allow W-2 employees to deduct unreimbursed business mileage on their state income tax returns.
Because each state has its own tax code, the rules and eligibility for this deduction can vary significantly. Some states that did not conform to this provision of the TCJA allow employees to deduct these expenses, often following rules similar to the pre-TCJA federal guidelines. Employees should check the specific tax laws for the state in which they file.
Employer Reimbursement as an Alternative
For employees who can no longer take a tax deduction, employer reimbursement is the primary method to be compensated for business mileage. The tax treatment of these reimbursements depends on whether the employer uses an “accountable plan.” To qualify, the employer’s reimbursement arrangement must meet three IRS tests: the expenses must have a business connection, they must be adequately substantiated by the employee, and any excess reimbursement must be returned in a reasonable time.
Under an accountable plan, reimbursements paid to an employee are not considered income and are not reported as wages on their Form W-2, making the reimbursement tax-free. Substantiation requires a log showing the mileage, dates, and purpose of the travel. The IRS provides a standard mileage rate—$0.70 per mile for business use in 2025—that employers can use as a benchmark for tax-free reimbursement.
If an employer’s reimbursement policy does not meet the criteria for an accountable plan, it is considered a “non-accountable plan.” Under this arrangement, all reimbursements are treated as taxable wages. This means the payments are added to the employee’s regular income and are subject to federal income, Social Security, and Medicare taxes.