This article was updated to reflect 2016 rates.
What is mileage reimbursement?
Some work situations require that employees use their own vehicles for work-related travel (excluding travel to and from work). To cover the costs of operating a vehicle for business purposes, employers are required to reimburse employees for their mileage and record reimbursements in employee payroll records. The IRS specifies the mileage reimbursement rate each year.
Benefits of mileage reimbursement
Mileage reimbursement offers benefits to both employers and employees. It encourages employees to make more business trips and support their companies without worrying much about the accrued mileage costs. Employers can also do away with the costs of operating their own vehicle fleet.
Qualification for mileage reimbursement depends on the kind of traveling involved. This includes the employee driving to another city or state in his or her own vehicle, driving for moving or medical purposes, and driving in the service of a charitable organization. The mileage rates apply to different types of motor vehicles, including cars, pickup trucks, and panel trucks.
Mileage reimbursement rate
The federal mileage rate announced every year is influenced by certain factors. For instance, an increase in gasoline prices will be reflected in the reimbursement rate.
The IRS relies on a study conducted by Runzheimer International to set the rate. Runzheimer uses variable and fixed operating costs, including vehicle insurance, expenses as a result of wear and tear, and fuel economy of vehicles, to determine the standard federal mileage rate.
The 2016 mileage reimbursement rates are:
- 54 cents per mile for business miles driven
- 19 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
Employers should remember that the standard mileage rate fixed for the year cannot be applied after using any methods of calculating depreciation under the MACRS or Modified Accelerated Cost Recovery System. It includes vehicles for which the business plans to claim a deduction under Section 179, vehicles such as taxicabs that are used for hire, or the simultaneous ownership and lease of over four vehicles (something common with fleet operations).
Most businesses reimburse employees for mileage related to business trips separately from payroll. The refund is generally made within a time frame of two weeks following the submission of the mileage report. Some employees tend to submit mileage-related information after several business trips, as they can receive bigger lump sums.
- For more information on mileage reimbursement rules, refer to the IRS discussion on the business use of a car.
- For current mileage reimbursement rates, refer to the IRS website.
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