Do You Pay Taxes on Mileage Reimbursement?
Navigate the complexities of mileage reimbursement taxes. Understand when your employer's payments are tax-free and when they count as taxable income.
Whether you pay taxes on mileage reimbursement depends on specific conditions related to how your employer handles these payments. When employers properly reimburse employees for business mileage, these payments can often be non-taxable.
Non-Taxable Mileage Reimbursements
Mileage reimbursements are not taxable income if they are paid under an “accountable plan.” An accountable plan is a reimbursement arrangement that adheres to specific Internal Revenue Service (IRS) guidelines. Such plans offer tax advantages for both employers and employees by ensuring reimbursements cover legitimate business expenses.
For a reimbursement plan to qualify as accountable, it must satisfy three main rules. First, the expenses must have a clear business connection, meaning they were incurred while performing services as an employee. Second, the employee must adequately account for these expenses to the employer within a reasonable period, typically within 60 days after the expense is incurred. This substantiation often involves providing detailed mileage logs, including dates, destinations, and the business purpose of each trip.
Third, the employee must return any excess reimbursement or allowance to the employer within a reasonable period, generally within 120 days of receiving it. Failure to return excess amounts can lead to the entire reimbursement being treated as taxable. When these three conditions are met, the reimbursement is not reported as wages on the employee’s Form W-2 and is exempt from income tax withholding, Social Security, and Medicare taxes.
The IRS sets an annual standard mileage rate for business use, which employers often use for reimbursement. For 2025, this rate is 70 cents per mile. Reimbursements made at or below this standard rate under an accountable plan are non-taxable.
Taxable Mileage Reimbursements
Mileage reimbursements become taxable income when an employer’s plan does not meet the IRS’s accountable plan rules. In these situations, all reimbursements are considered additional wages. This means the payments are subject to income tax withholding and payroll taxes, increasing the employee’s taxable income.
Even under an accountable plan, any amount reimbursed that exceeds the IRS standard mileage rate for business use is taxable income. For instance, if the 2025 rate is 70 cents per mile and an employer reimburses 75 cents per mile, the extra 5 cents per mile would be taxable. This excess amount is then included in the employee’s wages on their Form W-2.
Situations arise where an employee incurs business mileage expenses but receives no reimbursement from their employer. Employees who are not reimbursed or whose reimbursement is taxable may wonder if they can deduct these costs on their personal tax returns.
Tax Reporting and Deductions
Mileage reimbursements that qualify as non-taxable under an accountable plan are not reported on an employee’s Form W-2. This is because they are not considered part of an employee’s gross income.
Conversely, any mileage reimbursements considered taxable income are included in the employee’s wages. These taxable amounts will appear in Box 1 of the employee’s Form W-2, subjecting them to all applicable federal income, Social Security, and Medicare taxes.
Regarding the deduction of unreimbursed employee business expenses, the Tax Cuts and Jobs Act (TCJA) of 2017 suspended the deduction for most unreimbursed employee business expenses, including mileage, from 2018 through 2025. As a result, most W-2 employees cannot deduct these expenses on their federal income tax returns during this period. While this deduction is currently scheduled to be reinstated in 2026, it remains unavailable for the majority of employees through the end of 2025.