Should You Pay Your Employees For Mileage?

You may not know this but you don’t actually have to reimburse your employees for mileage expenses.

Of course, if you don’t, they may not want to drive anywhere for you, because it’s expensive and it causes wear and tear on the vehicle, but if you decide, for whatever reason, that you don’t want to reimburse your employees for mileage, then rest assured, you won’t be held liable by the law for not reimbursing.

The IRS issues a mileage reimbursement rate each year both as a guide to a fair rate, and as the specific amount that the IRS reimburses employees on their taxes if employers don’t reimburse on an employee’s pay check.

It would be a pretty bad deal for the employee if they just had to drive their cars around on their own dime. But they don’t. Even if employers choose not to reimburse employees, or if employers choose to reimburse less than the IRS rate, employees can still get the reimbursement on their taxes.

Let’s take a look at some reasons for and against both options.

Reasons to Pay Mileage:

  • Businesses can deduct the mileage and vehicle maintenance reimbursements on their taxes.
  • Reimbursing employees for mileage is a perk that may help employers attract and retain talented and trust worthy employees.
  • It’s compassionate. The tax return at the beginning of the year isn’t going to help employees fill their gas tanks right now! If your employees make a low wage, each penny really matters and they probably need the help with gas – right now.

Reasons Not To Pay Mileage:

  • If the employee logs a lot of miles, it might be better for them to take the deduction at the end of the year. This means that the mileage reimbursement (gas money and repairs) will ultimately be tax free. This isn’t the best scenario for the majority of employees, but a well paid salesperson might opt for this path rather than filling out expense reports every week.
  • Neither party may want to bother with it at all if miles are very low. If reimbursement takes place at all, the IRS’s rules must be followed. This means keeping meticulous records.

9 Comments

    1. Dr. Mazer,

      Yes, employees cannot deduct mileage to and from work. The deductions can only be made for work related driving, like for deliveries or errands. Deductions are not just for self-employed people, however. Employees can take the deductions too if their employers don’t reimburse.

      This is from the Turbo Tax forum: “You can deduct certain types of mileage as an employee on your Schedule A – Itemized Deductions. The deduction is allowed to the extent the expenses exceed 2% of your adjusted gross income. Your adjusted gross income is listed on Form 1040, line 37.”

      1. Dr. Susan Mazer,

        I think your opinion is really valuable and, personally, I agree with you. Many employers and employees are confused by this, though, and so I thought it might be useful to make the matter clear. Employees, in particular, ask this question all the time about whether it is legal for their employees to not reimburse. Technically it is. Now, those employees might want to consider finding a new, more compassionate and fair employer but they can’t sue their employer over it.

      2. Of course, you are correct…and what is legal is not necessarily the best business practice or the healthiest for an engaged work force. Perhaps I misunderstood the intention of your post. It read as if you were providing a rationale…seemingly reasonable, if not fair, to demand an employee do errands for the employer without reimbursement. I appreciate your bringing up the topic and offering a forum for discussion.

      3. Dr. Mazer,

        We also appreciate your input! It’s important for us to note that the majority of employees, particularly those in lower paying jobs would definitely appreciate immediate reimbursement, and that’s the best way to handle paying for mileage in most cases.

        I thought the idea that a tax deduction was worthy of writing about precisely because it’s unusual and most people don’t realize it’s an option. Next time I’ll do a better job of pointing out that it’s for a special class of circumstances rather than something to be used for the general purpose of handing employee miles in typical cases.

        Thanks again for taking the time to discuss this with us!

  1. I started working for a traffic school last year and they pay me for the time of the class but do not pay me for traveling from locations to locations . They provide the car and all the automobile expenses. I spend more time traveling in between students than the time they actually pau me for. Can I deduct that travel time? So confused. I do get a 1099. for my per dium hours of the lessons.

    1. Hi Frosario,

      This travel time that you’re talking about doesn’t seem to be related to mileage. This isn’t something you would deduct since the car and gas are paid for. The question here is whether you should be paid for this time or not. I think you should run it by an employment lawyer. It might be a violation of wage and hour laws or it might be perfectly acceptable. I am not sure.

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