How Does the IRS Calculate Mileage Reimbursement?

Mileage reimbursement allows individuals and businesses to account for the costs of using a personal vehicle for specific qualifying purposes. Understanding these rules is important for both employees seeking reimbursement from an employer and self-employed individuals looking to claim deductions on their taxes. The Internal Revenue Service (IRS) sets guidelines to ensure consistency and fairness in how these vehicle-related expenses are recognized for tax purposes.

IRS Standard Mileage Rates

The IRS establishes standard mileage rates annually, which are used to calculate the deductible costs of operating an automobile for business, medical, charitable, or moving purposes. For 2024, the standard business mileage rate is 67 cents per mile. The rate for medical or moving purposes is 21 cents per mile, and the charitable rate is 14 cents per mile. These rates simplify expense calculation, providing an alternative to tracking every actual vehicle operating cost.

The IRS determines these rates through an annual study that considers the fixed and variable costs associated with operating a vehicle. Fixed costs include insurance, vehicle depreciation, and registration fees. Variable costs include gasoline, oil changes, tire wear, and maintenance. The business standard mileage rate reflects both fixed and variable costs, whereas the medical and moving expense rates are based solely on variable costs.

Qualifying Travel for Reimbursement

For business mileage, travel must be ordinary and necessary for the trade or business. This includes trips between a main job and a temporary work location, or travel directly from one job to a second job. Travel from home to a temporary workplace when the regular job is elsewhere also qualifies. Commuting from home to a regular place of business is not deductible.

Medical mileage applies to travel primarily for, and essential to, medical care. This covers trips to a doctor, hospital, or clinic for treatment, picking up prescribed medications, or transporting a dependent for medical appointments. Parking fees and tolls incurred during these medical trips are also deductible.

Charitable mileage involves using a personal vehicle to perform services for a qualified charitable organization. The travel must be directly linked to volunteer activities for an IRS-recognized charity, such as driving to deliver donated goods or transport individuals for charitable purposes. Parking and toll fees related to charitable driving can be included in the deduction.

Moving expenses are generally not deductible for most taxpayers due to recent tax law changes. However, active-duty members of the Armed Forces who move due to a military order and a permanent change of station can still claim this deduction. This includes moves from home to a first duty post, between permanent posts, or from a last post of duty to a home of record. The deduction covers costs such as transporting household goods and personal effects, as well as travel expenses to the new home.

Maintaining Mileage Records

To substantiate mileage claims for tax purposes, the IRS requires detailed and contemporaneous records. For each trip, taxpayers must document the date, the starting location and destination, the purpose of the trip, and the total miles driven. Recording odometer readings at the beginning and end of the year is also important.

Records can be kept using various methods, including traditional paper logs, spreadsheets, or specialized mileage tracking applications. Digital records are accepted as long as they are accurate, reliable, and easily accessible. Maintaining these records at or near the time of the travel helps ensure their accuracy and compliance in case of an IRS inquiry or audit.

Tax Implications of Mileage

The tax implications of mileage vary significantly depending on whether an individual is an employee or self-employed. For employees, mileage reimbursement received from an employer under an “accountable plan” is generally not considered taxable income. An accountable plan requires expenses to have a business connection, be substantiated with adequate records, and any excess reimbursement must be returned within a reasonable timeframe.

Unreimbursed employee travel expenses are largely no longer deductible for most individuals due to tax law changes. However, certain government employees, qualified performing artists, or fee-basis state or local government officials may still be able to deduct these expenses on Form 2106. If an employer reimburses at a rate lower than the IRS standard rate, these specific groups might deduct the difference.

Self-employed individuals, including independent contractors and small business owners, deduct business mileage directly against their income. This deduction is typically reported on Schedule C (Form 1040) under the car and truck expenses section. They can choose to use the standard mileage rate or calculate actual vehicle expenses, which include gas, oil, repairs, and depreciation. Parking fees and tolls incurred for business purposes can be added to either method.

For charitable and medical mileage, these expenses are claimed as itemized deductions on Schedule A (Form 1040). Medical expense deductions are only allowed to the extent they exceed a certain percentage of the taxpayer’s adjusted gross income. The moving expense deduction for qualifying active-duty military members is reported on Form 3903 and taken as an adjustment to income on Schedule 1 (Form 1040).