Do You Get Taxed on Mileage? Reimbursements & Deductions

Mileage plays a significant role in an individual’s financial picture, particularly concerning tax obligations and potential benefits. The treatment of mileage for tax purposes varies considerably depending on whether it represents a reimbursement received from an employer or an expense an individual seeks to deduct from their income. Understanding these differences is important for navigating tax responsibilities and optimizing financial outcomes related to travel.

Taxation of Mileage Reimbursements

When an employer reimburses an employee for business-related mileage, the tax implications depend on how the reimbursement plan is structured. An “accountable plan” allows reimbursements to be non-taxable income for the employee. To qualify as an accountable plan, the expenses must have a business connection, meaning they were incurred while performing services as an employee.

Employees must adequately substantiate these expenses to the employer within a reasonable period. Any excess reimbursement must be returned to the employer within a reasonable period. If these conditions are met, the reimbursed amount is not included in the employee’s gross income and is not subject to income tax withholding or employment taxes.

In contrast, a “non-accountable plan” treats all mileage reimbursements as taxable wages. Under such a plan, the employee is not required to substantiate expenses to the employer or return any excess payments. These reimbursements are reported as wages on the employee’s Form W-2 and are subject to federal income tax, social security tax, and Medicare tax. Employers often use the IRS standard mileage rates to calculate reimbursements, which simplify the process and are typically considered reasonable amounts for accountable plans.

Deducting Mileage Expenses

Individuals may be able to deduct mileage expenses. This applies primarily to self-employed individuals who incur travel expenses directly related to their business activities. Most employee business expenses, including those for mileage, are generally no longer deductible for federal tax purposes due to changes introduced by the Tax Cuts and Jobs Act.

However, certain categories of employees, such as qualified performing artists, fee-basis government officials, and certain reservists of the Armed Forces, may still be eligible to deduct unreimbursed employee business expenses. Business mileage includes travel from a home office to a client’s location or between different work sites.

Medical mileage involves travel for medical care and can be deducted if total medical expenses exceed a certain percentage of adjusted gross income. Moving mileage is generally limited to active-duty military members moving due to a permanent change of station. Charitable mileage pertains to travel performed for the benefit of a qualified charitable organization.

Taxpayers can calculate their mileage deduction using one of two methods: the standard mileage rate or actual expenses. The standard mileage rate is a set rate per mile determined annually by the IRS, covering all vehicle operating costs like depreciation, maintenance, and fuel. Alternatively, individuals can deduct actual expenses, keeping records of all costs such as gas, oil, repairs, insurance, and vehicle depreciation. Commuting costs between a home and a regular place of employment are generally not deductible.

Essential Record Keeping

Accurate and detailed record keeping is fundamental for both mileage reimbursements and deductions. For every business trip, individuals must meticulously record specific information. This includes the date of the trip, the destination, and the specific purpose of the travel. Additionally, the mileage driven for each trip must be documented.

Maintaining contemporaneous records is highly recommended, meaning information should be recorded at or near the time of the expense. This practice ensures accuracy and strengthens the credibility of the records if they are ever reviewed.

A traditional mileage logbook is a reliable option, where entries are manually made for each trip. Mobile applications offer a digital solution, often leveraging GPS to automatically record trips and generate reports. Detailed calendar entries can also serve as supporting documentation. Consistent and thorough record keeping is paramount for substantiating mileage claims to an employer or the Internal Revenue Service for a tax deduction.