The state of Michigan does not require mileage reimbursement at a specific mileage rate. However, reimbursing employees for mileage is good for business. Here's your guide to choosing the best rate.
Michigan mileage rates in 2024 and 2025
Under Michigan state law, employers do not have to reimburse employees for personal vehicle use. Michigan employers do have to respect the state minimum wage. Michigan mileage reimbursements should also take competition into consideration.
Federal mileage rate benchmarking
In the absence of state legal requirements, many businesses use the federal mileage rate as a benchmark. Businesses have used the 2024 mileage rate for Michigan reimbursements at 67 cents-per-mile. Or they selected a mileage rate or car allowance that better fit their employees' needs.
Many businesses to stay competitive will adopt the 2025 federal mileage rate in Michigan as well. But problems can come with using a national mileage rate in a specific state. We will explore this problem below.
Michigan minimum wage and mileage pay
Michigan employers cannot legally allow business expenses to reduce pay below the state minimum wage. As of January 1, 2025, the Michigan minimum wage is $10.56 per hour. This rate will rise to $12.48 per hour on February 21, 2025 unless the state legislature takes action to prevent the increase.
Total compensation cannot dip below the Michigan minimum wage. A mileage reimbursement or car allowance can prevent this form of wage theft for sales reps, delivery drivers, account managers, and other employees.
What is the 2025 Michigan mileage rate?
Because Michigan does not mandate a mileage reimbursement rate for business, many employers use the federal rate. For 2025, the IRS business mileage rate is 70 cents per mile.
Rules for state vs. private mileage reimbursements in Michigan
Employees of the state of Michigan are entitled to a standard mileage rate or a premium rate if they meet certain conditions. For standard work purposes, the mileage rate is $0.44/mile. For premium work purposes, the rate is $0.67/mile, effective October 1, 2024, for fiscal year 2025.
Private employers do not have to reimburse mileage in Michigan. However, they may choose to do so because they want to stay competitive in their hiring practices.
Taxable vs. non-taxable vehicle plans
There are three main approaches to paying employee vehicle costs. One is taxable, and the other two are tax-free if properly executed.
- Car allowance - typically taxable because there is no accounting procedure to prove business use of the payments
- Mileage reimbursement - non-taxable if paid at the federal rate or less and a proper mileage log is kept
- FAVR allowance - non-taxable if IRS guidelines are followed and a proper mileage log is kept
Federal vs. state mileage rates in Michigan
Because the IRS standard business rate is a national mileage rate, it may not work for all Michigan employers. Michigan drivers experience average gas prices compared to the national level. But auto insurance premiums average $3,131 per year for full coverage. This is higher than the national average of $2,648.
Michigan also has the highest vehicle repair and maintenance costs in the country. With higher-than-average insurance and maintenance costs, Michigan employees require some reimbursement or compensation. And a more optimized rate than the federal rate may be best.
IRS mileage rate vs. FAVR rates
A FAVR reimbursement plan provides a great alternative for Michigan businesses and employees. FAVR plans are tax-free and designed to match localized costs. This approach works well for an organization seeking to pay competitive rates while staying on budget.
The less flexible IRS rate has a tendency to over-reimburse some workers and under-reimburse others. FAVR avoids overpaying and underpaying but is more complex to administer.
How to administer the mileage rate for Michigan
Establishing a reimbursement policy
Employers should first establish a clear reimbursement policy that outlines the process, rates, and any necessary documentation. This document should state the car allowance amount or mileage rate. If the rate differs from the federal rate, explain how the rate was selected.
It is best practice to require employees to provide a copy of their insurance declarations page. This proves that they have sufficient car insurance to cover an accident that occurs on the job. Requiring this step as part of the reimbursement policy protects the company from vicarious liability.
Mileage reimbursement log requirements
Whether you use the federal rate or FAVR to reimburse Michigan drivers for mileage, employers must keep records. Here's what the IRS requires for a mileage log to keep payments tax-free:
- Date and purpose of the trip
- Starting and ending locations
- Total miles driven
Best practice is to use a mileage tracking app to record mileage accurately, automate the process, and provide timely reports. These reports may also provide insights into different drivers' routes and productivity.
Fixed vs. variable costs for Michigan mileage reimbursements
A mileage reimbursement should cover both fixed costs and variable costs of vehicle use.
Fixed vehicle costs
Fixed costs remain predictable regardless of how much you drive each month:
- insurance
- depreciation
- license
- registration
Variable costs
Variable costs increase the more you drive:
- fuel
- maintenance
- oil
- tires
Tolls, parking, and other costs
Other reimbursable expenses for vehicle travel can include tolls and parking fees. The employee must demonstrate that these expenses had a business purpose.
Choosing a fair 2025 Michigan mileage rate
While no law requires mileage reimbursement in Michigan, businesses should reward employees for productive vehicle use. A mileage reimbursement or FAVR program can keep help your business attract and retain valuable workers.
A FAVR plan provides the best business reimbursement method. FAVR separates out fixed expenses from variable expenses while using localized cost data. The approach ensures that Michigan employees receive payments that match their high insurance and maintenance costs. The employer can control costs and provide transparent payments.
To learn how a FAVR plan could reimburse your Michigan employees, contact mBurse today.