Does mileage reimbursement include gas? How IRS and FAVR methods compare

When you're clocking up miles for work—whether it's heading to a client meeting or making deliveries—those miles can quickly turn into significant costs. Mileage reimbursement is designed to cover these expenses, but what exactly does it include? More importantly, does mileage reimbursement include gas payment reimbursement?

Let's dive into what mileage reimbursement is all about and how it works with regards to gas reimbursement.

Does mileage reimbursement include gas?

Mileage reimbursement is all about compensating you for the costs you rack up while driving your personal vehicle for business purposes. It covers a range of expenses tied to operating a vehicle, making sure you’re not left footing the bill for work-related travel. The goal is to fairly compensate you for using your own wheels for the job.

To understand whether gas is included in your reimbursement, we need to first understand the ways in which your company calculates reimbursement amounts.

These methods are:

• The IRS standard mileage rate.
• The fixed and variable rate (FAVR) method

Let’s dive into these methods to understand which one is more likely to compensate you for gas expenses.

The IRS standard mileage rate method

The IRS mileage rate is shaped by a careful study of the costs involved in operating a vehicle for business, including gas prices and even oil prices. National averages are key in setting this rate.

The IRS gathers data from across the U.S. to gauge typical driving costs, including gas prices and maintenance fees. By using this data, the IRS ensures the rate applies broadly, considering regional variations.

In short, it offers a per-mile rate that reflects average vehicle costs, ensuring fair compensation for your work-related driving expenses without tracking every single cost.

The issue is, local gas rates may vary significantly compared to national averages, leading to less than satisfactory gas expense reimbursement. For instance, your vehicles might be operating in a region where gas prices are 20-30% higher than the national average.

In this case, the IRS standard mileage rate will underestimate the gas expenses you incur, resulting in a lower reimbursement rate. The result is dissatisfied employees that could impact your business’ future.

This is where the FAVR reimbursement method comes in handy.

The fixed and variable rate (FAVR) method

The fixed and variable rate (FAVR) reimbursement provides a personalized take on mileage reimbursement. By separating fixed costs like insurance from variable ones like fuel, FAVR offers a more precise reflection of your driving expenses. It tailors reimbursement to your specific costs, ensuring it aligns closely with what you actually spend.

As a result, you can rest assured that you’ll reimburse employees based on actual spend. While this sounds great, there are a few pitfalls to watch out for. For starters, make sure your employees report expenses accurately.

Methods like FAVR could unintentionally incentivize fraud and gas theft. For instance, an employee might fill their personal vehicle with gas outside work hours but submit a claim for it. Employing spend category controls and tracking expense reports in real time is critical to preventing this type of fraud.

Overall, the FAVR method works well, provided you install the right expense management solutions to keep expenses in check.

Which method ensures reimbursement for gas?

The bottom line is that mileage reimbursement includes gas expenses. This is true whether you use the IRS standard mileage rate method or the FAVR (Fixed and Variable Rate) method.

The real question isn't whether gas is covered (it is), but how accurately each method reflects your employees’ actual fuel expenses—FAVR tends to be more precise since it uses local gas prices, while the IRS rate uses national averages that might not match prices in your area.

So if you use the IRS standard mileage rate, your employees might notice that not all of their gas expenses are covered. If you use FAVR, you will most likely compensate employees for all of their gas expenses.

How to choose the right mileage reimbursement method

Choosing the right mileage reimbursement method is about aligning with your organization’s expense policy goals. Do you want to streamline the process, cut costs, or ensure fair employee compensation? Knowing your objectives guides your choice.

Consider how often and where employees drive for work. These factors influence their costs and can vary widely. A method perfect for one group might not fit another, especially with differing driving conditions.

Assess your administrative capabilities. Methods like FAVR demand detailed tracking and management, and if resources or systems are a concern, simpler methods like the IRS mileage rate might be more feasible.

Compare the costs and benefits of each method too. For instance, FAVR might come with high costs, but when tied to a great expense management platform, your time saved by automating expense tracking could offset those costs.

Streamline your mileage reimbursement with Ramp

Mileage and gas expense reimbursement can be a hassle, but it doesn’t have to be. At Ramp, we get the complexities of managing business travel expenses and offer solutions to simplify the process. Our platform integrates corporate cards, expense management, and bill payment software to streamline your financial operations.

With Ramp, automate receipt capture and reporting, cutting out manual expense tracking. Our AI-powered workflows make expense management a breeze, saving you time and reducing errors. Whether you’re handling mileage reimbursement or other expenses, our tools give you the efficiency and accuracy you need.

Join over 25,000 businesses that trust Ramp to optimize their finance operations. Let us help you build a stronger business by modernizing your financial processes. Request a demo or sign up today.