If you drive a personal vehicle for work, your employer may pay a mileage rate to offset the costs you incur. Once you know the mileage rate, it's easy to calculate the reimbursement. But is that reimbursement sufficient?
To cover employee vehicle costs incurred as part of the job, an employer pays a cents-per-mile rate to employees. The business mileage rate for 2025 is 70 cents-per-mile, as set by the IRS. A company may reimburse an employee at this rate for business mileage.
Calculating a mileage reimbursement is easy. To do so, multiply the mileage rate by the miles you drive over a payment period. For example, if you drive 1,000 miles this month, your reimbursement using the federal mileage rate will be $700.
How do you calculate business mileage? First, understand what counts as business mileage. Business mileage includes trips made for business purposes but excludes commuting miles.
You can determine business mileage in two ways:
Operating a personal vehicle for business generates more expense than just gas. Gas and mileage reimbursement are not the same thing. A gas card just covers fuel. But a mileage reimbursement covers a range of expenses, including gas.
Reimbursable expenses include these additional costs:
Reimbursable vehicle costs might amount to more than you expect. Depreciation and insurance together comprise about 60% of the average American driver's vehicle costs. Does your mileage rate fully cover your costs?
You pay no taxes on a mileage reimbursement if you receive the IRS mileage rate or less – $.70/mile for 2025. Some companies pay a fixed monthly car allowance and a modest mileage rate. In this case, the allowance is taxed but not the mileage rate.
Alternately, a reimbursement plan called fixed and variable rate reimbursement pays both a fixed stipend and a variable mileage rate. This approach, also known as a FAVR reimbursement, remains non-taxable as well.
Under the Tax Cuts and Jobs Act of 2017, employees cannot write off business mileage. Only self-employed drivers can write off mileage using the 2024 business rate of $.67/mile.
Before this law was enacted, an employee could only deduct unreimbursed business expenses. Any reimbursed mileage would be excluded because the company had already paid for it tax-free.
These tax rules expire at the end of 2025 if Congress does not extend them. But this would only apply to unreimbursed mileage. Alternatively, a taxpayer could use the expense method of calculating deductible costs using receipts for purchases.
No federal law requires employers to reimburse mileage, but some state laws do. California, Illinois, and Massachusetts all require full reimbursement of personal vehicle expenses incurred on the job. Several other states have employee-friendly laws that also affect mileage reimbursements.
In March 2024, a federal court found in favor of a pizza delivery driver who wanted to be reimbursed for driving costs. This decision could set a precedent that pushes more employers nationwide to provide business vehicle reimbursements.
When evaluating a mileage plan, make sure to understand how the IRS determines its standard mileage rate. Each year, the IRS calculates the federal business mileage rate based on average costs for U.S. drivers. If you do not incur average costs and drive close to the average number of miles (14,000), the IRS rate might not work.
The standard mileage rate for 2024 was 67 cents per mile. This rate worked well for drivers who experienced average costs at the average mileage amount. But the 2024 standard mileage rate did not work for all drivers. The same is true of the standard mileage rate for 2025 of 70 cents per mile.
In order to receive a mileage reimbursement, you must keep track of miles driven. Your employer may leave it up to you to track and report mileage, or you may have a system that calculates your mileage. For IRS compliance, a detailed log must include the date and purpose of each trip, the miles driven, and relevant locations.
Recording and reporting mileage can be time-consuming. What if all you had to do was open an app on your phone at the beginning of a trip, and that was it? A mileage tracking app uses GPS to automate mileage tracking and recording. This lets you focus on your job rather than adding up and reporting miles.
But what about privacy? The mBurse mileage tracker, known as mLog, tracks mileage in real time but only reports business miles—not in real time. No personal trips are reported. However, if you forget to turn the app off during a personal errand, you can always edit the trip.
When receiving a mileage rate, it's important to compare your expenses to reimbursement amounts. If you work in an expensive part of the country or drive fewer miles than average, you may find that your reimbursement falls short. High gas prices may reduce your wages since most company mileage rates are not responsive to gas prices.
Looking back at the list of expenses that a mileage rate covers, you can estimate your monthly costs. Receipts and credit card statements will help you calculate how much you pay per month for gas and other expenses, etc. There are car depreciation calculators online. (Or try this free tool.)
If you find your reimbursement isn't keeping up, what do you do? You have a right to expect your employer to reimburse business expenses fully. The law requires employers to reimburse all work-related vehicle expenses in some states, such as California and Illinois.
Chances are, you're not the only one at the company receiving an insufficient reimbursement. It may be time for the employees to request a more robust vehicle reimbursement.
When you use your own vehicle for business purposes, you deserve compensation for the expenses you incur. What is the best reimbursement rate for your business?
If you already receive the IRS mileage rate of $.70/mi, seeking an increased rate is not in your best interest. Anything over that rate will be taxable income. Instead, the best interest of both company and employees could be fixed and variable rate reimbursement.
A Fixed and Variable reimbursement (FAVR) plan provides highly accurate vehicle reimbursements. The fixed monthly car stipend pays for fixed costs like insurance. The variable rate adjusts to changes in gas prices. And all payments remain tax-free. For several reasons, a FAVR plan is fairer than a simple mileage rate.
Try out our calculator to learn more.
Yes, a mileage reimbursement should cover fuel costs. The IRS calculates expected fuel costs when calculating the standard business rate each year. If your organization pays a different rate, it should ensure that all fuel costs are covered.
Typically, an employer will reimburse mileage or gas, but not both. A mileage reimbursement is intended to cover fuel costs. A gas reimbursement often pairs with a company car or a car allowance program. A gas and mileage reimbursement must not exceed the federal rate in total, or there may be tax implications.
A company mileage rate does not calculate mileage reimbursements based on the gas mileage of employees' vehicles. The IRS uses average fuel costs to calculate its standard business rate. A FAVR program uses a standard vehicle to calculate fuel costs based on that vehicle's fuel efficiency.
To calculate mileage for work, include all miles driven between the office and work sites and from work site to work site. Work sites include delivery locations, visits to clients, and destinations of work errands. Commuting miles do not count for reimbursements.