How to Calculate Mileage Pay for Work and Taxes

Mileage pay represents a reimbursement or a tax deduction for costs associated with using a personal vehicle for business activities. Its general purpose is to offset the wear and tear, fuel, and other operational expenses incurred by individuals who drive for work. This calculation is relevant for employees seeking reimbursement from their employers and for self-employed individuals looking to deduct eligible vehicle expenses on their tax returns. Understanding how to accurately calculate mileage pay helps ensure proper compensation or maximizes tax benefits for business-related vehicle use.

Understanding Eligible Mileage

Defining eligible mileage is a foundational step in calculating mileage pay. Business mileage includes travel between two different workplaces, driving from a regular workplace to a temporary work location, or traveling to meet clients and conduct business errands. For example, a sales professional driving to various client sites throughout the day would count these miles as eligible business travel. Similarly, trips to pick up office supplies or make deliveries for a business also qualify.

Certain types of travel are not eligible for mileage reimbursement or deduction. Commuting from a personal residence to a fixed or regular place of business is considered a non-deductible personal expense. This applies even if an individual works remotely but travels to a primary office. However, if a home office qualifies as a principal place of business, then travel from the home office to another work location can be deductible.

Choosing a Mileage Rate

When calculating mileage pay, individuals have two methods for determining the rate: the Internal Revenue Service (IRS) standard mileage rate or the actual expenses method. The IRS standard mileage rate is a simplified approach that accounts for the average costs of owning and operating a vehicle. For the 2024 tax year, the business mileage rate was 67 cents per mile, increasing to 70 cents per mile for the 2025 tax year. This rate covers fuel, maintenance, insurance, and depreciation.

Alternatively, the actual expenses method allows individuals to deduct the specific costs incurred for business use of their vehicle. This method requires meticulous record-keeping of all vehicle-related expenses, such as gas, oil, repairs, tires, insurance premiums, vehicle registration fees, and depreciation. If using this method, only the percentage of these costs attributable to business use can be deducted. An employer might also set their own reimbursement rate, which may or may not align with the IRS standard rate.

Accurate Mileage Tracking

Accurate mileage tracking is a critical component for both reimbursement and tax deduction purposes, regardless of the chosen calculation method. The IRS requires detailed records to substantiate vehicle expense deductions. These records should include the date of each trip, the destination, the business purpose for the travel, and the starting and ending odometer readings.

Maintaining detailed records allows for the calculation of total miles driven for business purposes. Various methods can facilitate this tracking, including traditional manual logbooks, which are notebooks kept in the vehicle for immediate entry. Modern solutions include smartphone applications that automatically track mileage using GPS, and dedicated vehicle tracking devices that plug into the car’s diagnostic port. Contemporaneous record-keeping, meaning entries made at or near the time of the trip, is emphasized by the IRS to ensure the validity of the mileage log.

Performing the Calculation

Once eligible business miles are accurately tracked and a mileage rate is chosen, the calculation of mileage pay is straightforward. The fundamental formula involves multiplying the total number of business miles driven by the applicable mileage rate. For example, if an individual drove 1,000 business miles in 2024 and uses the IRS standard mileage rate, the calculation would be 1,000 miles multiplied by 67 cents per mile, resulting in $670.00.

This simple multiplication provides the total amount of reimbursement an employee can claim or the deduction a self-employed individual can take. If the actual expenses method is used, the calculation involves determining the percentage of total vehicle use that was for business and applying that percentage to the sum of all documented vehicle expenses. For instance, if 60% of vehicle use was for business and total actual expenses were $5,000, the deductible amount would be $3,000.

Submitting and Recording Mileage

After calculating the eligible mileage pay, the next step involves submitting or recording this information for reimbursement or tax purposes. For employees, this means completing an expense report provided by their employer. This report requires the documented mileage, dates of travel, and business purposes, which are then submitted to the human resources or finance department for review and processing. Employers require adequate documentation to process reimbursements and ensure compliance with internal policies.

Self-employed individuals must maintain detailed mileage records to support deductions claimed on their tax returns. These records are important for substantiating business expenses if the IRS reviews the tax filing. The calculated mileage deduction is reported on Schedule C (Form 1040), Profit or Loss From Business, for sole proprietors. Records should be maintained for at least three years from the date the tax return was filed.