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Updated: May 23, 2024

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

Published By:

Jon Davis

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Why is it important for business owners to understand how mileage reimbursement works? There are times when employees get on the road and drive to other locations in order to complete the work they do — from making unexpected deliveries to transporting items that need to be used to set up and work a trade show booth.

Fast facts to know about mileage reimbursement

  • Mileage reimbursement is meant to compensate employees for vehicle trips made to carry-out company business
  • An employee must be driving a personal vehicle to qualify for mileage reimbursement
  • The IRS sets a standard mileage reimbursement rate that most small businesses use

And as a small business, there’s going to be times you’re responsible for reimbursing staffers for the miles they put on their car — during work hours.

 

If this sounds complicated, the good news is that you’re in the driver’s seat since this expense can be included as part of the payroll process, and there are ways to make sure employees are getting reimbursed for mileage by automating this step into your pay runs.

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

Did you know?

Originally, back in 2022, the IRS reimbursement rate was 58.5 cents per mile. Due to inflation, the IRS made a mid-year change that year to 62.5 cents per mile for business.

To be reimbursed, your employees will need to keep track of their mileage using a mileage log — it can be digital or hardcopy — which should state both the beginning and ending mileage for each trip, as well as the purpose of each trip. For instance, if they were picking up refreshments for an office meeting or making a delivery — they should record the date along with a note about the purpose of the trip.

 

Now that we better understand the rates to use and how employees can keep track of the miles as they add up, let’s find out how employers actually reimburse employees.

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.

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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.

Am I required to offer mileage reimbursement to my employees?

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.

Offering mileage reimbursement benefits you and your employees

Offering mileage reimbursement to your employees is a win-win. You can deduct the expense of reimbursing your employees for mileage while employees are happier, and less likely to cause a fuss about running business errands.

 

This article is for informational purposes only and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors for formal consultation.

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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.

Frequently asked questions employers have about mileage reimbursement

  • How to calculate mileage reimbursement?

    To calculate mileage reimbursement, multiply the mileage reimbursement rate by the total number of business-related miles driven.For example, if an employee drove 100 miles for business-related tasks or purposes and the reimbursement rate is .67 cents per mile, then you would multiply .67 x 100 for a total of $67.

  • Is mileage reimbursement part of salary?

    No, mileage reimbursement is payment in addition to an employee’s salary. It is payment for job-related vehicle expenses incurred. Because it is not considered income by the IRS, it is not taxable.

  • What does mileage reimbursement cover?

    Mileage reimbursement is payment to an employee for driving their personal vehicle on work-related purposes.