Reimbursing mileage in Colorado requires recognition that different vehicles incur different costs. Different terrains also should affect mileage rates. Here's your guide to paying mileage reimbursements in Colorado.

What is the Colorado mileage rate?

The state of Colorado does not require private employers to reimburse mileage. This means that private companies can reimburse drivers at whatever rate best fits the needs of the company.

For many organizations, the IRS business mileage rate is the presumptive mileage reimbursement. The 2025 mileage rate is 70 cents per mile.

However, in the state of Colorado unique considerations may cause employers to use a different rate. This has to do with mileage rates for Colorado state employees.

Colorado state mileage rates

Colorado has a law that governs mileage reimbursements of state officers and employees. Colorado code CRS 24-9-104 states that these workers receive mileage reimbursement at one of two possible rates:

• 90% of the IRS mileage rate for 2-wheel-drive vehicles
• 95% of the IRS mileage rate for 4-wheel-drive vehicles

These two different rates reflect costs differences associated with location. For example, mountainous terrain often requires 4-wheel-drive.

Mileage reimbursement 2025 in Colorado

For the 2025 Colorado state mileage rates, use the following calculations:

• 2WD: 90% of federal rate (70 cents per mile) = 63 cents per mile
• 4WD: 95% of federal rate (70 cents per mile) = 67 cents per mile

For 2024 Colorado mileage reimbursements, the rates were 60 cents/mile for 2WD and 64 cents/mile for 4WD.

Setting mileage rates for private employees

Because CRS 24-9-104 applies only to state employees, private companies must consider other factors when determining a mileage rate. Is it better to pay the full federal mileage rate? Or to pay the same rates that state employees receive? Or are all of these rates too high?

State minimum wage law

The first factor to consider is the state minimum wage law. In Colorado, the minimum wage is $14.81 as of January 1, 2025. If an employee's work vehicle costs reduce wages below that amount, then the employer has violated the law. Any mileage reimbursement should be high enough to prevent violating the minimum wage.

Vehicle type and terrain

The other factors to consider are vehicle type and terrain. The state of Colorado recognizes that four-wheel-drive vehicles are more expensive to operate. Shouldn't a private company make the same distinction? If an employee needs a 4WD vehicle for the job or covers difficult terrain, the reimbursement should reflect those higher costs.

Vehicle cost benchmarking

When setting a company mileage rate, benchmarking is useful. You can benchmark the rate based on the state mileage rate of 90% or 95% of the federal rate. You can benchmark based on what competitors pay. Or you can get more precise and benchmark using vehicle cost data for Colorado.

The best Colorado mileage reimbursement

Colorado has a unique set of circumstances, with flat terrain in the east, a large urban area in the center, and rugged terrain to the west. Should all drivers receive the same mileage reimbursement regardless of where they work?

Developing different CO mileage rates

Imagine a rep that just covers an urban territory. Now imagine a rep that covers a large mountainous territory. Should both reps receive the same mileage rate? They will not incur costs at the same rate. Their mileage reimbursement rate should reflect this disparity.

There is a mileage reimbursement method that adjusts for location and territory size. The company selects an appropriate vehicle for the location, whether 2WD or 4WD. Then you input the garage zip code for the driver and your rates are generated automatically. What is this method called?

Fixed and variable rate reimbursement

The fixed and variable rate method perfectly fits a state like Colorado. This mileage reimbursement method bases rates on location and territory size. Also known as FAVR, a fixed and variable rate plan is IRS-recommended. Whether a business has 5 drivers or 5000, a FAVR plan works well for companies facing location-based cost differences.

FAVR's 2025 mileage rates in Colorado

Each month a FAVR plan readjusts the mileage rates based on local gas prices. Drivers also receive a set amount that only adjusts once every 6-12 months. This fixed amount covers auto insurance, depreciation, and other fixed costs. Both rates derive from localized costs for the company-selected vehicle.

Employees do not have to drive the company-selected vehicle, however. Using a standard vehicle to set rates allows for transparency and fairness. Colorado drivers in 2025 can trust that a FAVR reimbursement rate will perfectly fit their needs. This is the best mileage reimbursement approach for companies with a variety of driver costs and situations.

IRS-compliant mileage tracking

For Colorado mileage reimbursements, you need a mileage tracking method. This allows the employee to receive payments tax-free. Properly tracking business mileage shows that payments reimbursed business costs.

Mileage log method

The simplest method is a mileage log. This log could be a company spreadsheet, expensing tool, or even a paper logbook. A proper mileage log should include:

• Dates and purposes of business trips
• Total business mileage for all trips
• Locations of trips
• Total mileage for the whole year

This method can be tedious for employees. For employers, it can create oversight problems if drivers guesstimate or buffer mileage.

GPS mileage tracking for business

A better method is a GPS mileage app. Today's mileage tracking apps automate the mileage progress. They automatically record and calculate mileage. Later, the app automatically uploads the mileage to the reimbursement system.

A good mileage tracking app has the following strengths:

• Hands-free automation of mileage tracking
• Accurate GPS locating services without battery drain
• Intuitive user interface and easy settings management
• Helpful reports and integration with admin software

Your 2025 Colorado mileage reimbursement plan

Need help developing a mileage reimbursement policy for 2025? Looking for a new mileage tracking app to try out? Contact mBurse professional services today for rate development, policy guidance, and an app demo.