Businesses and employees operating in the state of Texas should be familiar with laws governing mileage reimbursements. Texas does not have strict reimbursement laws, but competitive businesses pay employees for using their personal vehicles.
Mileage reimbursement in Texas
Texas law does not require employers to reimburse employees using a personal vehicle. The Federal Labor Standards Act, however, prohibits any arrangement that reduces the employee's wages below the minimum wage of $7.25/hour. This includes unreimbursed vehicle travel expenses.
Federal law could soon be applied more strictly now that the Supreme Court has found in favor of a pizza delivery driver whose wages were reduced by unreimbursed mileage. Reimbursing Texas employees for mileage will protect your business as well as make it a more attractive place to work.
What is the 2024 Texas mileage rate?
The federal mileage reimbursement rate is 67 cents per mile. In many states this is the going rate for mileage. The IRS rate is competitive for Texas mileage reimbursements. This is because gas prices in the state of Texas consistently track below the national average.
Texas state employees receive the IRS standard mileage rate of 67 cents per mile when traveling for work. Private employers may choose a different rate or method to offset costs.
Some employers opt to establish a monthly car allowance. Unlike a mileage reimbursement at the IRS rate or less, a car allowance is taxable. Since the payments are taxed, the employer does not have to track mileage to prove business use of the vehicle.
A great option for Texas employees is a FAVR reimbursement plan. 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.
State of Texas mileage reimbursement options
Because there is no Texas law on using personal vehicles for work, employers can choose any reimbursement method. The question is which one best fits the needs of employees.
Paying a mileage reimbursement is simple and tax-free. This method requires an IRS-approved mileage log and may over-reimburse some employees and under-reimburse others.
A FAVR plan is also tax-free and requires an IRS-approved mileage log. Unlike the federal mileage rate, FAVR uses localized cost data for Texas drivers to derive rates. This approach eliminates over- and under-reimbursements. The downside is that it is more complex to administer.
How to pay mileage reimbursements in Texas
Employers should first establish a clear reimbursement policy that outlines the process, rates, and any necessary documentation. Whether you use the federal rate or a FAVR rate designed for reimbursement of mileage in Texas, employees must keep detailed records.
Texas reimbursement for mileage is not governed by state law, but to keep the payments tax-free, you must comply with federal tax law. Here's what the IRS requires for a mileage log:
- Date and purpose of the trip
- Starting and ending locations
- Total miles driven.
Many businesses use mobile apps instead of paper logs or spreadsheets. These mileage tracking apps are accurate, automate the process, and ensure timely mileage reports. They also provide visibility for managers into each worker's productivity.
Costs covered by Texas travel reimbursements
A mileage reimbursement should cover a number of different costs. Some of these are fixed costs:
- insurance
- depreciation
- license
- registration
Others are variable costs that increase the more you drive:
- fuel
- maintenance
- oil
- tires
Other reimbursable expenses for vehicle travel can include tolls and parking fees. The employee must demonstrate that these expenses had a business purpose.
Choosing the best Texas mileage rate 2024
Because there is no Texas mileage reimbursement law, employers have freedom to choose how to offset employee vehicle expenses. The most competitive employers will choose mileage rate that benefits employees while remaining cost-effective.
A FAVR plan provides the best method of business reimbursement. FAVR not only localizes rates but also separates out fixed expenses from variable expenses. These features ensure a higher degree of accuracy than a standardized mileage rate. This approach controls costs and provides transparency in generating payments to employees.
To learn more about how a FAVR plan could benefit your Texas employees, contact mBurse today.
