Mileage reimbursement FAQ: Standard deductions, IRS and state mileage rates, and more [2025]

When it comes to taxes, mileage reimbursement and all its ins and outs can feel overwhelming for businesses and employees alike. However, accurate mileage reimbursement isn't just about numbers; it is critical to operational efficiency. It saves precious time, keeps IRS audits at bay, and fosters employee satisfaction.

In this article, we'll break down the essentials of mileage reimbursement, addressing everything from current IRS mileage rates to best practices in record-keeping, so you can confidently manage this crucial aspect of your business finances. Let's get into it.

What is mileage reimbursement?

Mileage reimbursement is when businesses compensate employees for using their personal vehicles for work-related travel. This includes travel to client meetings, conferences, or picking up supplies. Companies set a rate per mile to cover expenses like fuel, maintenance, and depreciation, which ensures employees aren't out-of-pocket for business travel.

Why is accurate mileage reimbursement important?

Accurate mileage reimbursement is important because it provides tax deductions for businesses, reducing taxable income. Keeping precise records also prevents IRS headaches and audits. Fair compensation for travel boosts satisfaction and morale for employees. Bottom line: accurate mileage tracking affects profitability for any business. 

Current IRS mileage rates

The IRS mileage rate is a guideline used to calculate the deductible costs of operating a personal vehicle for business. It's set by the IRS to simplify expense tracking and usually changes yearly, so it's vital to stay updated and know the current rates.

What were the government mileage rates for 2024?

What was the mileage rate for 2024? The standard IRS mileage rate for 2024 was 67 cents per mile, reflecting rising fuel and vehicle maintenance costs. The business mileage rate for medical or moving purposes was 21 cents per mile.

What is the 2025 IRS mileage rate?

The IRS mileage rate for 2025 is up 3 cents at 70 cents per mile. Typically, these rates are disclosed in December each year. Vehicles used for other purposes remain at the same rates from 2024. You can check the IRS website to stay updated on the latest rates each year.

IRS rules for mileage reimbursement eligibility: Who is eligible for mileage reimbursement?

Employee eligibility for mileage reimbursement depends on company policy and IRS guidelines. Common driving tasks such as attending business meetings or client visits qualify for reimbursement. However, eligibility differs for employees versus independent contractors. 

Understanding employee vs. independent contractor eligibility

Employees are typically entitled to mileage reimbursement as part of their compensation package. Employers often have specific policies outlining the types of trips that qualify for reimbursement. Commonly eligible activities may include:

• Traveling to client meetings: Employees can usually claim mileage for the round trip when they need to meet with clients.

• Going on business trips: Employees may be reimbursed for mileage incurred while attending conferences, training sessions, or other work-related events.

• Running errands for the company: If an employee must use their vehicle for company errands, such as picking up supplies or making deliveries, those miles are generally reimbursable.

Conversely, independent contractors operate under different standards when it comes to reimbursement. Since these folks are considered self-employed, they are responsible for tracking their own business expenses, including mileage. However, many contractors also include mileage-related expenses (gas, maintenance, depreciation, and insurance) when filing for tax deductions.

Do state rules affect mileage reimbursement?

State rules can impact mileage reimbursement. While federal rules set a baseline, each state may have its own specific regulations. That’s why it’s essential to check state-specific rules to ensure compliance. Some states with unique reimbursement laws include California, New York, and Texas. Be sure to always verify the current rules in your state. Here’s a chart to help you stay informed:

Alabama	Alaska	Arizona	Arkansas	California
Colorado	Connecticut	Delaware	Florida	Georgia
Hawaii	Idaho	Illinois	Indiana	Iowa
Kansas	Kentucky	Louisiana	Maine	Maryland
Massachusetts	Michigan	Minnesota	Mississippi	Missouri
Montana	Nebraska	Nevada	New Hampshire	New Jersey
New Mexico	New York	North Carolina	North Dakota	Ohio
Oklahoma	Oregon	Pennsylvania	Rhode Island	South Carolina
South Dakota	Tennessee	Texas	Utah	Vermont
Virginia	Washington	West Virginia	Wisconsin	Wyoming

Record-keeping best practices

Maintaining accurate records is essential for small businesses. It ensures you can justify mileage deductions and avoid potential audits. Keeping thorough records will prepare you for each year's rate change and maximize reimbursements. Let’s check out the best record-keeping methods to help streamline your process.

Record-keeping for mileage deductions

Keeping detailed records for mileage deductions helps during tax time and minimizes the risk of the IRS knocking on your door. Here are some effective ways to keep track:

1. Manually-filled mileage logs: This method is simple but requires discipline. Keeping a small notebook in your vehicle can make this task more manageable. These logs should include:

• Date of travel

• Destination

• Purpose of the trip

• Miles driven

2. GPS tracking apps: Apps provide an automated way to track mileage, offering convenience and accuracy. Make sure your chosen app is company-approved and complies with tax regulations.

3. Expense management software: Tools like Expensify offer built-in mileage tracking features. This software can automatically log trips, categorize expenses, and even prepare reports, saving time and reducing errors.

The tax obligations of mileage reimbursement

Accurate mileage reimbursement helps keep businesses organized, and understanding the tax obligations surrounding mileage is key. Plus, who wants to risk getting in trouble with the IRS?! Here's what to know about tax obligations from both a business owner and employee perspective:

Can businesses deduct mileage expenses?

Businesses can deduct mileage expenses on their tax returns to help lower taxable income. Naturally, they must use the IRS standard mileage rate. They should keep track of all business miles driven. If someone is self-employed, they'll use a form like a Schedule C when filing taxes.

How does mileage reimbursement affect employees' taxes?

Employees don't pay taxes on mileage reimbursements as long as they are reimbursed at the IRS standard rate. This amount isn't considered taxable income. However, any mileage not reimbursed can be deducted, subject to limitations. Employees must distinguish clearly between reimbursed and unreimbursed mileage. Keeping accurate records will help them claim these deductions on their tax returns, ensuring they get the benefits they’re entitled to.

Tips for effective mileage reimbursement

Accurate mileage reimbursement is a valuable practice for any business, so we've put together some tips for making it effective.

Effortless mileage reimbursement: Tips for businesses

To streamline the reimbursement process, consider doing the following:

• Automate the process: Use mileage tracking apps or expense management software like Expensify to save time and minimize errors. Automation leads to efficiency, making it easier to handle mileage reimbursements.

• Standardize policies: Develop clear mileage reimbursement policies within your company. Ensure that every employee knows the rate per mile and how to log their mileage accurately.

• Encourage timely reporting: Motivate employees to submit complete and accurate mileage reports on time. Prompt reporting helps avoid last-minute rushes and potential errors.

• Regularly review policies: Keep your company’s travel policies updated to reflect changes in tax laws and company needs. Regular reviews ensure compliance with the latest IRS mileage rate and federal mileage standards.

Mileage reimbursement FAQs

• Is the IRS going to change the mileage rate?

  Yes, the IRS updates the mileage rate every year. This rate reflects changes in the cost of operating a vehicle. It is important for self-employed individuals and businesses to stay informed, as this helps accurately calculate mileage reimbursements and deductions.

• How do I calculate 67 cents per mile?

  To calculate mileage at 67 cents per mile, which was the 2024 federal mileage rate, simply multiply the number of miles driven by 0.67. For example, if you drive 100 miles for business, the calculation would be:

  100 miles x 0.67 = $67.00

  This amount can be claimed as a mileage allowance or reimbursement.

• How is the IRS mileage rate for 2025 determined?

  The IRS bases the mileage rate on several factors. It considers fuel prices, maintenance costs, and vehicle depreciation. The government analyzes these elements to establish a fair rate per mile. This figure is essential for calculating mileage deductions and reimbursements.

• How can I use the 2025 IRS mileage rate for tax deductions?

  You need to track your business miles to use the 2025 IRS mileage rate for tax deductions. Keep a detailed log of each trip. Include the date, purpose, and miles driven. Multiply your total annual business miles by the 2025 IRS rate. Deduct this total from your taxable income. This reduces what you owe on taxes.

• Where can I find official updates on the 2025 IRS mileage rate?

  Find the latest IRS mileage rate on the official IRS website. They release updates and detailed information there. It's a reliable source for businesses needing the current IRS mileage rate. Stay informed to properly apply the rate for reimbursement and tax purposes.