How to Calculate Mileage Reimbursement for Employees

Mileage reimbursement allows employees to recover costs incurred when using personal vehicles for business-related travel. This practice ensures fair compensation for employees, covering vehicle operating expenses when driving for company purposes.

Understanding the Reimbursement Rate

The Internal Revenue Service (IRS) standard mileage rate is the primary method for calculating mileage reimbursement in the United States. This rate, updated annually, covers the comprehensive costs of operating a vehicle. For 2025, the business mileage rate is 70 cents per mile.

This rate accounts for various vehicle operating expenses, including fuel, oil, maintenance, repairs, insurance, registration fees, and depreciation. Employers are not legally mandated to use the IRS rate, but many adopt it due to its simplicity.

If an employer chooses to reimburse at a rate lower than the IRS standard, the difference might not be deductible for the employee on their personal tax return. If the reimbursement rate exceeds the IRS standard, the excess amount could be considered taxable income for the employee.

Identifying Reimbursable Travel

Business travel eligible for mileage reimbursement includes driving required for work purposes beyond an employee’s regular commute. This can involve trips to client meetings, training sessions, conferences, or travel between different work sites. Running business errands, such as picking up office supplies, also qualifies.

Driving from an employee’s home to a regular place of business is typically a personal commute and is not eligible for reimbursement. However, if an employee travels from their regular workplace to a temporary work location, such as a client’s office or a job site, that travel is generally reimbursable. Travel from a home office, if it is the primary place of business, to another work location can also be considered business mileage.

Essential Record-Keeping for Reimbursement

Accurate and timely record-keeping is fundamental for claiming mileage reimbursement. For each business trip, employees must track specific details to ensure eligibility and for potential tax substantiation. This includes the date of travel, the destination, and the business purpose of the trip.

Records should also include the starting and ending odometer readings for each trip. If applicable, the names of clients or business associates visited should be noted. The IRS requires these records to be contemporaneous, meaning they should be recorded at or near the time of the trip. Common methods for tracking include physical mileage logbooks, digital spreadsheets, or specialized mobile applications.

Performing the Mileage Calculation and Submission

Calculating mileage reimbursement is a straightforward process once necessary records are compiled. Employees multiply the total qualified business miles driven by the applicable reimbursement rate. For instance, if an employee drove 180 business miles in January 2025, the calculation is 180 miles multiplied by the 70 cents per mile rate, resulting in a $126.00 reimbursement.

The process for submitting a reimbursement claim typically involves compiling recorded mileage data onto an expense report or through an online portal. Employees should adhere to company policies regarding submission timeline and required documentation for efficient processing and timely payment.