How to Do Mileage Reimbursement for Your Business

Mileage reimbursement allows individuals to recover costs incurred when using a personal vehicle for business-related travel. This practice ensures employees and self-employed individuals are not personally burdened by expenses tied to their professional activities. The primary goal is to fairly compensate for vehicle operation costs, which include fuel, maintenance, insurance, and depreciation. It serves as a standardized way for businesses to manage and account for travel expenses.

What Qualifies for Reimbursement

Mileage reimbursement applies to travel undertaken specifically for business purposes. This includes trips such as visiting clients, traveling between different job sites, attending business meetings, or running specific errands for the company. The distinction lies in whether the travel directly serves a business objective, rather than being part of a normal commute.

Travel considered personal, such as driving from home to a regular place of employment or engaging in personal errands, does not qualify for reimbursement. The Internal Revenue Service (IRS) provides guidelines that differentiate between business and personal use of a vehicle, emphasizing that only ordinary and necessary business expenses are eligible. Company policies align with these IRS guidelines, detailing specific scenarios and documentation requirements.

Methods for Tracking Mileage

Accurate mileage tracking is fundamental for proper reimbursement and compliance. One common method involves maintaining a manual mileage log, which can be a simple notebook or a detailed spreadsheet. For each business trip, individuals must record specific information to substantiate the expense:
The date of the trip
The starting and ending odometer readings
The total miles driven
The destination
A clear description of the business purpose for the travel

Many individuals now utilize mobile mileage tracking applications, which leverage GPS technology to automatically record trips and generate detailed logs. These apps capture the date, route, distance, and allow for easy categorization of the trip’s business purpose. Regardless of the method chosen, consistent and detailed record-keeping is important for processing claims and for audits by the IRS or internal company review.

Calculating Your Reimbursement

Calculating mileage reimbursement involves one of two primary methods: the IRS standard mileage rate or the actual expense method. The IRS standard mileage rate is a per-mile amount that covers the average costs of operating a vehicle for business, including expenses like gasoline, oil, maintenance, insurance, and depreciation. This rate is updated annually by the IRS to reflect changes in vehicle operating costs. For instance, the business standard mileage rate is 70 cents per mile for 2025.

To determine reimbursement using this method, the total business miles driven are multiplied by the applicable standard rate. The alternative is the actual expense method, which requires calculating the actual costs for business use of the vehicle. This involves summing up specific expenses:
Gas
Oil changes
Repairs
Tires
Insurance premiums
Vehicle registration fees
Depreciation
While the standard mileage rate offers simplicity, the actual expense method may result in a larger reimbursement if vehicle costs are higher than the average covered by the standard rate.

Submitting Your Claim

Once mileage has been accurately tracked and the reimbursement amount calculated, the next step is to submit the claim. Many organizations use specific company forms, which may be paper-based or digital templates, for employees to detail their mileage expenses. Online expense reporting portals or integrated accounting software systems are increasingly used to streamline this submission process. These digital platforms guide the user through entering trip details and attaching necessary documentation.

Supporting documentation is a mandatory component of the submission. This includes the completed mileage log, which provides the date, mileage, and business purpose for each trip. Receipts for any associated expenses, such as tolls or parking fees, must also accompany the claim. After submission, the claim undergoes an approval process by a manager or finance department, followed by payment through payroll or a separate reimbursement system.

Understanding the Tax Treatment

The tax treatment of mileage reimbursement differs depending on whether the individual is an employee or self-employed. For employees, reimbursements are non-taxable if received under an “accountable plan” as defined by the IRS. An accountable plan requires that expenses have a business purpose, employees must substantiate their expenses with adequate records, and any excess reimbursement must be returned to the employer within a reasonable timeframe. If these conditions are not met, the reimbursement may be considered taxable income to the employee.

Self-employed individuals, in contrast, cannot be reimbursed by an employer but can deduct business mileage as an expense on their tax returns. They can choose to use either the standard mileage rate or the actual expense method to calculate this deduction, reducing their taxable income. From an employer’s perspective, mileage reimbursements made under an accountable plan are considered a deductible business expense, reducing the company’s own taxable income.