The current IRS rules for business mileage deductions continue until 2026. The Tax Cuts and Jobs Act (2017) removed business expense deductions for employees. These rules continue to affect whether you can deduct your mileage in tax years 2018-2025.
Can I deduct business mileage on my tax return?
Claiming mileage on your taxes depends on whether you incurred the mileage as an employee. For the tax years 2018-2025, employees cannot deduct business mileage. Self-employed tax filers may deduct mileage incurred as a contractor or business owner.
What's the IRS mileage rate for 2024 taxes?
Claiming miles on taxes - self-employed
If you are a contractor or business owner, you have two options. You can deduct your business mileage, or you can deduct the actual costs of your vehicle used for business. You may also be able to take a section 179 deduction on a vehicle purchased for their business.
If during 2024 you accrued business mileage as a self-employed contractor, you can deduct that mileage using the 2024 business rate of $.67/mile. (Here's our take on the 2024 IRS mileage rate.)
Claiming miles on taxes - employees
If you drive a personal vehicle for an employer, you cannot deduct that mileage your tax return. You cannot write off mileage driven to work. You cannot write off mileage incurred from a business trip. You cannot deduct business expenses incurred as an employee.
Businesses with employees who drive personal vehicles for work need to understand these rules. Because employees cannot take a deduction for mileage, they should receive a mileage reimbursement or car allowance. The business, however, may write off mileage paid at or below the 2024 federal mileage rate of 67 cents-per-mile.
Tax rules for car allowances and mileage reimbursements
Whether an employer pays a car allowance or a mileage reimbursement affects tax implications. Car allowances are typically taxable, whereas mileage reimbursements are often non-taxable. These distinctions affected whether employees could write off mileage in the past.
Car allowances and mileage tax deduction rules
The IRS considers a car allowance taxable income. Prior to 2018, a worker receiving a car allowance could deduct mileage. This arrangement helped offset the tax withholding on the car allowance. Under the old tax code, individuals who itemized deductions could either claim business mileage or use the expense method.
Most people calculated the mileage, multiplied it by the IRS business mileage rate, and deducted that amount. If they drove a lot, then they got a huge deduction on their tax return. Those times are no more, and both employees and employers have had to adjust to the new reality.
Mileage reimbursements and tax write-offs
Under the Tax Cuts and Jobs Act, little changed for drivers who received a mileage reimbursement at the IRS mileage rate or a less. These workers were not able to deduct business mileage, since the deduction was only for unreimbursed business expenses.
Under the old tax code they could deduct any vehicle expenses above their reimbursement amount. That deduction disappeared with the removal of the miscellaneous deductions by the TCJA. Until those rules expire in 2026, no employed individuals can deduct unreimbursed expenses. Only contractors can write off unreimbursed costs.
Tax Cuts and Jobs Act - deductions, and reimbursements
When the TCJA eliminated mileage deductions, this increased the value of tax-free mileage reimbursements. Business owners and managers should ensure that all drivers get a fair vehicle reimbursement for their work. This includes sales reps, delivery drivers, account managers, and merchandisers.
State labor laws and mileage reimbursements
Some state laws require full reimbursement of employees for vehicle expenses. California, Massachusetts, and Illinois all have labor codes that fully protect employees from those expenses.
Other states, including New York and the Dakotas, have laws governing reimbursements as well. Employees in these states can recoup unreimbursed vehicle expenses via legal proceedings. Without the ability to deduct mileage on taxes, employees might be more likely to demand a full reimbursement.
Delivery drivers and mileage reimbursements
In addition to state labor codes, federal law can require reimbursement of some business expenses. This became clear in a March 2024 federal court decision in favor of a pizza delivery driver. In Parker v. Battle Creek Pizza, the court ruled that employers must cover costs for minimum-wage workers using their own cars for deliveries.
The Federal Labor Standards Act states that work expenses cannot lower a person's pay below the minimum wage. Many states have similar rules and much higher minimum wages than the federal minimum wage, which is currently $7.25/hour. If your organization has workers in states with a high minimum wage, review your vehicle policy.
Replacing the mileage tax deduction
Employees who use personal vehicles for business deserve compensation for that vehicle use. In the TCJA era, any business that does not assist employees with these costs should review their policies. Paying for gas with a fuel card does not solve the problem.
Reimbursable vehicle mileage costs
Reimbursable costs include insurance, maintenance, depreciation, and more. Subsidizing employee vehicle costs may be difficult for small business owners. In these times of inflation and high vehicle costs, employees prefer to work for companies that help with their expenses.
Non-taxable reimbursement
If you are an employee with unreimbursed vehicle expenses, consider opening a conversation about it with your boss. Switching from a taxable car allowance to a non-taxable FAVR program can provide a full reimbursement within budget.
Ways to reimburse business mileage
There are several ways an organization can provide a fair reimbursement for vehicle costs. Here are three recommendations.
1. Switch from a taxable car allowance to a non-taxable plan
Cutting the 30-40% of an employee's car allowance that goes to taxes can help improve employee benefits. This change may actually save the company money. Three options exist:
- Pay a FAVR car allowance
- Add mileage substantiation
- Adopt the IRS business mileage rate.
Be aware that mileage reimbursements tend to under-reimburse low-mileage drivers and over-reimburse high-mileage drivers.
2. Get a mileage tracker for business
Consider also exploring a convenient, hands-free mileage tracking app, like mLog. All non-taxable methods require a compliant mileage log, except for the actual expense method. Using an automated, accurate mileage tracker decreases administrative headaches compared to other mileage logs.
3. Ask your company to explore a new reimbursement plan
If you are an employee, calculate your work-related vehicle expenses. These include gas, maintenance, oil, depreciation, insurance, registration, and other fees. Compare the total with the amount you currently receive. If it falls short, approach your employer about boosting the reimbursement or switching to another plan.
Mileage deduction vs. mileage reimbursement
Switching from a taxable plan to a non-taxable plan often pays for itself and provides a win-win situation. Cutting the government out of the process leaves more funds for the company and the employees to share. This arrangement makes the vehicle reimbursement more equitable and robust than before.
Contact mBurse today about our reimbursement rate development program or our non-taxable reimbursement plans. Or use the calculator below. You'll find out how much your company could save by switching to a fixed and variable rate plan.
