What kind of mileage reimbursement should employers offer in the Commonwealth of Pennsylvania? State laws give private employers a lot of choice in setting the rate. Many opt for the federal rate set by the IRS, but other options may work better for some businesses.
PA mileage reimbursement rules
The Commonwealth of Pennsylvania does not require private employers to reimburse employees for vehicle use. State employees must be reimbursed at the federal rate set by the IRS. Many employers, however, treat the IRS standard business rate as the going rate for reimbursements.
Organizations that operate in Pennsylvania may set their own mileage rate or other method. No reimbursement is required unless vehicle costs would reduce wages below the Pennsylvania minimum wage of $7.25. If, as proposed, the state raises the minimum wage in future years, the same principle would apply. Vehicle costs cannot reduce wages below the minimum wage.
What is the 2024 PA mileage rate?
The 2024 federal rate of 67 cents-per-mile often acts as a benchmark for determining state mileage rates. While no law requires mileage reimbursement in Pennsylvania, many businesses use the federal mileage rate as a guideline. As long as a business pays the equivalent of the federal rate or less, the payments remain tax-free.
Because no Pennsylvania law requires reimbursements, business owners should consider an array of options beyond the IRS mileage rate. As a national rate, the IRS rate has flaws that other more localized rates can avoid.
Pennsylvania mileage rate comparisons
Without a law requiring reimbursements, businesses may avoid paying anything to offset employee vehicle costs. To stay competitive, however, it is important to explore various reimbursement options. Cost-effective methods exist that can attract and retain employees.
Mileage reimbursement using the IRS rate
The 2024 IRS business rate of 67 cents-per-mile is often the norm in many places. The benefit is its simplicity as well as its attractiveness to employees who drive a lot for work. That rate adds up quickly the more employees drive. The downside is its tendency to overpay some workers and underpay others.
Mileage allowance at federal rate
To avoid cost overruns, some employers offer a car allowance tabbed to the federal mileage rate. The employee receives a monthly stipend to offset costs and tracks mileage. If the mileage multiplied by the federal rate is less than the allowance, the remainder is taxed or returned to the employer. This approach effectively caps mileage at a specific amount, which controls costs but may impede productivity.
Fixed and variable rate (FAVR)
A FAVR plan uses localized costs to determine rates. This approach works well for Pennsylvania employers due to the range of costs experienced within the state. An employee based in the Philadelphia area may experience higher costs than a central PA employee. FAVR is a tax-free way to reimburse both employees fairly. It also adjusts for high-mileage and low-mileage drivers.
Pennsylvania mileage reimbursement documentation
To document a mileage reimbursement program, employers should follow IRS rules for mileage logs. These logs should include date, destination, purpose, and mileage for each business trip. Because logging mileage and trip data can be tedious, adopting expense reimbursement software is a good idea.
Expense reimbursement software
The best way to track and reimburse mileage is a mobile app attached to expense management software. The top qualities to look for:
- Hands-free mileage tracking
- Intuitive, user-friendly app interface
- Low battery drain and accurate GPS locating
- Streamlined approval process
- Reporting tools for business insights
Tax implications for Pennsylvania mileage rates
Whichever mileage tracking method you choose, it is important to remember the difference between taxable and non-taxable payments. Any payment without substantiation (using an IRS-compliant log) is taxable. Even with proper records, any amount above the IRS business rate or FAVR equivalent is taxable.
Employers should choose a tax-free reimbursement option to avoid unnecessary tax waste. Choosing a tax-free plan can keep the reimbursement program cost-effective and beneficial to retaining employees.
Paying tolls of Pennsylvania employees
Pennsylvania has over 500 miles of toll roads. The Pennsylvania Turnpike alone is 360 miles long. Businesses that choose to pay a mileage reimbursement should understand that mileage rates do not account for tolls. Employees may expect to be reimbursed for each toll incurred while on the job. (The daily commute, however, does not count as a business trip.)
Some employers may choose to use an EZ Pass account for all employees that drive for work. Or they may reimburse tolls on an individual basis. As with any reimbursement plan, the organization should have a state policy and streamlined procedure in place.
Choosing the best way to reimburse PA employees for a vehicle
Because of its ability to pay localized rates, a FAVR plan should be high on the list of Pennsylvania employers looking to reimburse vehicle use. Alternately, a single rate optimized for a set of employees operating under similar cost conditions may work well.
To learn more about Pennsylvania reimbursement rates and mileage tracking, contact mBurse today.
