When an employee uses a personal car for work, are employers required to reimburse mileage? Are they required to reimburse at the IRS rate or is this just the recommendation?
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Employers are not required to reimburse employees for mileage for use of a personal vehicle. When an employee uses his or her personal vehicle for work and the employer opts not to reimburse for mileage, then the employee may claim a deduction for the business mileage on his or her personal taxes.
Employers who do choose to reimburse mileage are generally free to structure that reimbursement plan in any manner that they wish and are not required to reimburse at the IRS rate. What the IRS rate represents is the maximum amount at which mileage may be reimbursed without becoming taxable wages.
If an employee’s mileage is reimbursed at less than the IRS rate, then the employee may claim the difference as a deduction on his or her personal taxes.
On the other hand, if an employer opts to reimburse the employee in a per-mile amount that is greater than the federal business mileage rate, then the difference in that reimbursement would be taxable income and must be reported as wages. The same is true for “non-accountable” plans through which the employer simply pays a flat monthly stipend to account for vehicle expenses, as opposed to reimbursing based on actual expenses or mileage incurred – this type of reimbursement plan is taxable.
For more information, you may find the following IRS Publication – Topic 514 Employee Business Expenses – instructive.