No federal law requires employers to reimburse their employees' business vehicle expenses. But many companies choose to – for good reasons.

Are employers legally required to reimburse mileage?

Federal law requires that all workers receive at least the federal minimum wage, which is currently $7.25/hr. If an employee's work-related vehicle expenses reduce take-home compensation below the minimum wage, then their employer should be either paying them extra to offset these costs or reimbursing these costs. (Pizza delivery drivers and other restaurant workers are particularly susceptible to this kind of under-compensation.)

Many states and localities have significantly higher minimum wages. In California, the minimum wage is $16/hr, and in many states in the mid-Atlantic and northeast, the wage ranges from $12/hr to $17/hr. If a worker's vehicle expenses reduce their compensation below the local minimum wage, then a raise or a reimbursement is necessary.

Some states also have labor codes that require employers to reimburse all work expenses. These business expense indemnification laws require businesses to be able to prove that they either directly reimburse all business-related vehicle expenses, pay an acceptable mileage rate (such as the IRS standard business rate or a fixed and variable rate plan), or provide additional compensation.

Should an employer reimburse mileage if they don't have to?

Outside of states with employee-friendly labor laws, such as California, Illinois, Massachusetts, New York, and the Dakotas, should an employer still reimburse employees for business mileage?

Many businesses pay a mileage rate to boost their benefits package and stay competitive. Hiring and retaining top employees should be one of the highest considerations for an employer considering whether to offer mileage reimbursement.

But it's not just a matter of staying competitive. It is also a matter of treating employees fairly and ensuring that they actually get to keep all of the salary. If the company is passing along business expenses to employees, that will create frustration and increase attrition.

It is not always best, however, to use a mileage rate as the method of reimbursement. Let's explore when and how to reimburse employees for mileage.

How to determine your business's mileage reimbursement plan

Here are some common questions about when and how to reimburse employees for personal vehicle use. Using the answers, you can evaluate your own organization's practices and whether a change is needed.

Is a commute reimbursable for business mileage?

No. A commute from home to a company office and back should not be considered business mileage. However, if an employee makes a business trip on the way home the portion of mileage above the distance from office to home should be reimbursed.

Is business mileage tax-deductible?

Businesses and independent contractors may claim mileage as a deductible business expense. However, for tax years 2018-2025, employees may not deduct business mileage or business expenses on their tax returns.

Before 2018, many employers relied on this deduction as a reason not to reimburse employees for mileage. It is now imperative for employers remember that their workers cannot write off mileage.

Are mileage reimbursements taxable?

Under IRS rules, as long as the mileage rate used for reimbursement does not exceed the standard business rate for that year ($.67/mile for 2024), and the employer keeps suitable records of employee business trips and mileage, then those reimbursements are not taxable. 

An up-to-date mileage log is necessary in order to demonstrate business use of the vehicle. Mileage reporting can become an Achilles heel, however, if a process does not exist to discourage employees from reporting extra mileage to increase their reimbursement amount.

What's the best way to track business mileage?

App-based mileage tracking has become today's norm. Using GPS technology in the employee's mobile device, these apps record mileage in real time. It is important to choose an app that protects privacy by keeping a wall between the contemporaneous mileage tracking and the periodic mileage reports that go to the employer for reimbursement.

Our app, mLog, is a hands-free, accurate mileage tracker that protects employee privacy and is suited for both large and small organizations. 

What is a fair rate for reimbursing mileage?

In most cases a fair rate is not a standardized rate such as the IRS rate. While the IRS rate is most common for reimbursements, it is often not a fair rate for an entire organization to use. This is because the IRS rate reflects the national average cost of owning and operating a vehicle per mile – based on last year's costs.

Because some parts of the country are far more expensive than others, and because different workers drive different amounts, a standardized mileage rate often creates inequalities when used for reimbursements.

How to calculate a fair mileage rate for employee vehicle use

Unless your employees drive similar amounts in regions with comparable driving costs, using a standardized mileage rate will introduce inequities between high-mileage and low-mileage drivers and between drivers in different regions.

The larger and more widespread a company is, the greater the variety of business travel costs for employees. Reimbursements can get pretty complicated in this way.

It is also important to know that low-mileage drivers often cannot recoup all of their business-related vehicle expenses because they cannot drive enough miles to deliver a sufficient reimbursement amount. High-mileage drivers may attain a reimbursement that exceeds their actual costs.

This is why many organizations have opted to adopt FAVR reimbursement plans instead of standardized mileage rates. FAVR plans deliver equitable reimbursements to employees that comply with IRS taxation rules and state labor codes.

Contact mBurse to learn more about tools to support your mileage reimbursements, rate development, or customized reimbursement administration.