If I Get Reimbursed for Mileage, Can I Deduct It?

Many who drive a personal vehicle for work receive a mileage reimbursement and wonder about the tax implications. This leads to a central question: if you are paid back for your mileage, can you also take a tax deduction for those same miles? The answer depends on your employment status and how your employer structures its reimbursement payments.

The Impact of Employment Status on Deductions

The ability to deduct business mileage depends on whether you are an employee or a self-employed individual. For W-2 employees, the Tax Cuts and Jobs Act (TCJA) of 2017 suspended the miscellaneous itemized deduction for unreimbursed employee business expenses from 2018 through 2025. Consequently, most employees can no longer deduct any business mileage on their federal tax returns, even if their employer does not reimburse them.

There are, however, a few specific exceptions. Armed Forces reservists, qualified performing artists, and certain fee-basis state or local government officials may still be able to deduct their unreimbursed mileage. These individuals would use Form 2106, Employee Business Expenses, to calculate their deduction.

In contrast, self-employed individuals, such as independent contractors and small business owners, operate under different guidelines. They report their business income and expenses on Schedule C (Form 1040), where ordinary and necessary business mileage is a deductible expense.

Understanding Employer Reimbursement Plans

The tax treatment of a mileage reimbursement is tied to the type of plan an employer uses. The Internal Revenue Service (IRS) categorizes these into two types: accountable and nonaccountable plans.

An accountable plan must satisfy three requirements to qualify. First, the expenses being reimbursed must have a clear business connection; they cannot be for personal trips or normal commuting. Second, the employee must adequately account for these expenses to the employer within a reasonable period, which is generally within 60 days of when the expenses were incurred. Adequate accounting involves submitting a detailed mileage log.

The third requirement is that the employee must return any excess reimbursement to the employer within a reasonable time frame, usually within 120 days. If a reimbursement arrangement fails to meet one or more of these three tests, the IRS classifies it as a nonaccountable plan. Examples include receiving a flat monthly car allowance with no requirement to substantiate mileage, or a plan that allows employees to keep any amount that exceeds their actual substantiated expenses.

Tax Treatment of Reimbursements and Deductions

How a mileage reimbursement is taxed directly impacts whether a deduction is possible, and this treatment depends on the employer’s plan. Under a properly structured accountable plan, reimbursements paid to an employee are not considered income and are not included on their Form W-2. Because this money is received tax-free, the employee cannot then deduct the miles for which they were reimbursed. This prevents a “double benefit” of receiving tax-free money and also claiming a tax deduction for the same expense.

The situation is different under a nonaccountable plan. Any payments made through a nonaccountable plan are treated as taxable income. These amounts are added to the employee’s regular wages and reported in Box 1 of their Form W-2. Since this reimbursement is taxed, the individual may be able to deduct their actual, substantiated business mileage. However, this deduction is only available to those who are eligible based on their employment status, as established in the first section.

Required Mileage Records

Whether you are substantiating expenses for an employer’s accountable plan or claiming a deduction on a tax return, the IRS requires detailed and timely records. A compliant mileage log is the primary form of proof and must contain specific data points for each business trip. Failure to maintain adequate records can result in the disallowance of a deduction or cause reimbursements under an accountable plan to become taxable.

For each business-related trip, your log must document:

• The date of travel
• The total miles driven
• The destination or location of your travel
• A clear business purpose for the trip, such as “client meeting with XYZ Corp”

These records should be created at or near the time of the trip; weekly updates are considered sufficient.

The IRS does require a record of the total miles the vehicle was driven during the year, including both business and personal use, along with the odometer reading at the beginning and end of the year. These detailed records are necessary to prove the business use of your vehicle to both your employer and the IRS.