How to Calculate Your Mileage Reimbursement

Mileage reimbursement provides compensation for using a personal vehicle for business or other qualified purposes. This compensation helps cover the costs associated with operating a vehicle, such as fuel, maintenance, and depreciation. Understanding how mileage reimbursement works is important for both employees seeking payment from an employer and self-employed individuals looking to claim deductions on their taxes. The Internal Revenue Service (IRS) establishes standard rates that simplify this process.

2022 Standard Mileage Rates

The Internal Revenue Service (IRS) sets optional standard mileage rates annually, which taxpayers can use to calculate the deductible costs of operating an automobile for various purposes. For the first half of 2022, from January 1 to June 30, the standard mileage rate for business use was 58.5 cents per mile.

Due to rising fuel costs, the IRS made a mid-year adjustment to the rates. From July 1 through December 31, 2022, the business mileage rate increased to 62.5 cents per mile. This change reflected the significant impact of fuel prices on vehicle operating expenses.

Separate rates apply for other specific types of travel. For medical or moving purposes, the rate was 18 cents per mile for the entire 2022 calendar year. The rate for miles driven in service of charitable organizations remained constant at 14 cents per mile throughout 2022.

Qualifying Travel and Covered Expenses

The standard mileage rate covers various types of vehicle use that qualify for reimbursement or deduction. Business travel includes driving from a main office to a client’s location, traveling between different job sites, or attending business meetings away from the regular workplace. Driving to and from your home to your primary place of work, known as commuting, is not included.

Medical travel involves trips to receive medical care, such as doctor’s appointments, hospital visits, or pharmacy trips. Charitable travel includes miles driven while performing services for a qualified charitable organization, like transporting supplies or volunteering at events. Moving expenses can also qualify for reimbursement, but only for active-duty members of the Armed Forces moving under orders to a permanent change of station.

The standard mileage rate covers overall vehicle operating costs, including variable expenses like gas, oil, and routine maintenance, and fixed expenses such as depreciation and insurance. Parking fees and tolls are not included and may be reimbursed or deducted separately.

Essential Record Keeping

Maintaining accurate records is important for substantiating mileage claims. For each trip, you must record specific details to ensure compliance with IRS guidelines and employer policies. This information includes the date of the trip, the destination, the purpose of the travel, and the total mileage driven for that specific trip.

Various methods can be used to track mileage effectively. Many individuals use a simple manual mileage logbook or a spreadsheet to record trip details. Alternatively, numerous smartphone applications are available that use GPS to automatically track and log mileage, which can streamline the record-keeping process. Some vehicles also have built-in odometers that provide accurate mileage readings for each journey.

These detailed records are important for several reasons. For employees, accurate logs provide the necessary documentation to submit to an employer for reimbursement, ensuring that the company’s policies are met. For self-employed individuals, precise mileage records are required to support deductions claimed on federal tax forms, such as Schedule C (Profit or Loss from Business), in case of an IRS inquiry.

Calculating Your Mileage Reimbursement

Calculating your mileage reimbursement is a straightforward process once you have accurate records of your qualified miles. The basic formula involves multiplying the total number of qualified miles by the applicable IRS standard mileage rate for the period the travel occurred. This calculation directly yields the reimbursement or deduction amount.

For example, if you drove 1,500 qualified business miles between July 1 and December 31, 2022, you would multiply 1,500 miles by the 2022 business rate of 62.5 cents per mile. This calculation results in a reimbursement amount of $937.50.

For employees, this calculated amount is submitted to their employer according to company policy for reimbursement. The employer then provides the employee with the tax-free reimbursement for their business expenses. Self-employed individuals use this calculation to determine the amount they can deduct on their federal tax return, specifically on IRS Form Schedule C, reducing their taxable income.