What’s the 2024 federal mileage reimbursement rate and how do you add it to payroll?

What is mileage reimbursement?

First things first, mileage reimbursement is designed to reimburse employees for errands they perform for the business, such as:

• Making a bank deposit
• Picking up office supplies
• Picking up refreshments for a meeting
• Picking up a colleague at the airport

Mileage reimbursements are meant to cover some of your employee’s personal car expenses including:

• Gas
• Insurance
• Depreciation
• Maintenance

Keep in mind that your employee must be driving their own vehicle to be eligible for mileage reimbursement. Driving a company car does not qualify for reimbursement.

Now that we know more about what mileage reimbursement is and examples of when it might be appropriate, let’s talk about the dollars and cents.

What rate should I use?

When reimbursing employees, most businesses use the standard reimbursement rate assigned by the IRS, which is adjusted annually.

2023 tax year

Here are the numbers shared by Uncle Sam.

• It was .655 cents per mile for business use
• Additionally, for charity it was 14 cents per mile
• Lastly, for medical or moving purposes for qualified active-duty members of the armed forces it was 22 cents per mile

2024 tax year

As the 2024 tax season comes around, you’ll want to keep these figures in mind:

• .67 cents will be used for business
• 14 cents per mile continues to be the number for charitable purposes
• 21 cents per mile for medical and moving, a 1 cent decrease from 2023

How should I reimburse my employees?

In many cases, businesses will account for employee expenses such as travel and mileage separately. But it’s actually a lot easier to process reimbursements when running payroll, provided that the reimbursement is handled properly, since employees should not be taxed on mileage reimbursement if you have an accountable plan.

An accountable plan requires three components:

1. That all reimbursable expenses are business-related and are incurred in the course of employment.
2. An accounting of the expenses made by the employee in a timely manner.
3. That the employee returns any excess monies received within a specified period of time.

Let’s see how the numbers might look with an example.

How to process mileage reimbursement through payroll

Jillian’s total gross pay for the week is $800.00. Her FICA taxes totaled $56.45 while her federal tax deduction was $81.00. Jillian was also repaying a payroll advance for $50.00. After deductions, Jillian’s total net pay for the week was $612.55. One more item we need to mention is that she also submitted a mileage reimbursement for $97.15 (.67 per mile x 145 miles). To pay the reimbursement properly, the reimbursement should be processed as follows:

• Calculate the employee’s gross wages or salary for the payroll period – $800.00
• Calculate and deduct all necessary taxes including federal income tax, Social Security and Medicare tax, and any state or local taxes – $137.45
• Deduct any other voluntary deductions from the employee’s pay amount – $50.00 (for the payroll advance)
• Calculate total net wages – $612.55
• Add the mileage reimbursement amount to the employee’s net wages – $97.15

Thus, Jillian’s net pay for the week should be $709.70.

Is there an employee mileage reimbursement law employers need to follow?

There is no federal law requiring businesses to offer mileage reimbursement, but there are some state laws have requirements in place (we touch on some below).

However, even if you don’t offer mileage reimbursement, when minimum wage requirements are involved, federal law mandates that employees at least receive minimum wage when taking mileage expenses into consideration.

Federal minimum wage is currently $7.25 per hour. If an employee’s vehicle expenses for work reduce their payment below this level, then employers are required to pay the employee to make up the difference.

For example, if your employee earns $7.25 an hour for 40 hours of work, their gross wages would be $290 per week. If your employee were to incur $100 in mileage expenses for delivering reports during the week, their base pay would drop to $4.75 per hour, putting them under minimum wage, which is prohibited by federal law. At that point, you would be required to pay them the difference ($100.00) so that they earn minimum wage.

Which states have a reimbursement law?

Illinois 

Illinois state law requires that employers reimburse employees for “all necessary expenditures or losses” that an employee runs into while performing his or her job or that are directly related to the services performed for their employer. In order to get reimbursed, employees must submit their expenses with supporting documentation (if appropriate) within 30 days after the expense was incurred.

Massachusetts

In Massachusetts, employees who are “required or directed to travel from one place to another after the beginning of or before the close of the work day shall be compensated for all travel time and shall be reimbursed for all transportation expenses,” according to state law. The state’s law also provides that an employee who typically reports to one particular work site but is asked to go to a different location shall receive compensation for all “travel time in excess of his or her ordinary travel time between home and work and shall be reimbursed for associated transportation expenses.”

California

California employers are required to indemnify employees for “necessary expenditures or losses incurred by the employee in direct consequence of his or her duties.” As part of this requirement, it is mandatory that employers pay mileage reimbursement.