How to calculate mileage reimbursement: Rules and rates for 2024

At first, mileage reimbursement may seem like one of the trickiest reimbursement methods. That’s because reimbursing employees for business miles traveled in a personal vehicle involves knowing the current IRS mileage reimbursement rates, associated tax rules, and how to keep track of business expenses to stay compliant.

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But once you understand how the mileage reimbursement process works, it’s pretty straightforward. In this guide, we’ll explain the ins and outs of mileage reimbursement for business travel, from how to calculate it to the possible tax implications for your business. 

What is mileage reimbursement?

Mileage reimbursement refers to the process of compensating employees for the costs they incur when they use their personal vehicles for business-related travel. Because business mileage is typically tax-deductible, the Internal Revenue Service (IRS) has specific mileage log requirements for how to track and report business mileage.

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Each year, the IRS publishes a standard mileage rate that represents the dollar amount companies can write off for each business mile driven during the tax year. The standard mileage rate is meant to include:

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• Gas and other alternative fuels
• Regular maintenance and wear and tear
• Car insurance premiums
• Depreciation

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The combination of these factors determines the IRS mileage rate, which is why it’s higher than the average cost of gas at a given time. As an aside, the standard mileage rate doesn't cover the cost of tolls—you’d typically claim these separately as travel expenses.

How mileage reimbursement works

The IRS standard mileage rate for 2024 is 67 cents per mile, which is up 1.5 cents from the 2023 rate of 65.5 cents per mile​. This is the benchmark for what you can write off as a business expense on your tax return.

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But when it comes to mileage reimbursement, the standard deduction is merely a guideline. As an employer, you can choose to reimburse more or less per mile. Amounts reimbursed above the limit are considered taxable income; amounts below the limit risk dropping employee pay below the federal minimum wage, which violates the Fair Labor Standards Act (FLSA).

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On top of that, the legal requirements for mileage reimbursement vary by state. California, Illinois, and Massachusetts, for example, have laws mandating mileage reimbursement. Other states follow the federal guidelines set by the IRS, which don’t mandate reimbursement but provide a standard mileage deduction that employers can use as a guideline.

How to calculate mileage reimbursement

To calculate a mileage reimbursement, multiply the number of miles driven by the current mileage rate set either by the state or the IRS, whichever is applicable.

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Suppose, for example, you drove 100 miles for business purposes. To calculate your reimbursement amount, you’d multiply the total miles driven (100) by the IRS standard mileage reimbursement rate for 2024 (67 cents per mile) to determine your total reimbursement:

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100 miles * $0.67 per mile = $67.00 reimbursement

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When to reimburse employees for mileage

Any time an employee or contractor uses their own vehicle for business use, it qualifies for mileage reimbursement. This includes traveling to client meetings, attending events, or completing work-related tasks. However, not all business mileage is reimbursable—notably, mileage related to regular commuting is not reimbursable.

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Many businesses choose to reimburse employees for their travel costs on a monthly basis. Depending on the number of employees you have and how frequently they travel, you could also reimburse them immediately after each trip or every quarter.

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Just keep in mind that the amount you reimburse your employees shouldn’t surpass the IRS standard mileage rate for the given tax year. If it does, the excess amount you reimburse employees will be treated as taxable income.

Challenges with mileage reimbursement

While mileage reimbursement is a common item on expense reports, it can introduce challenges to any bookkeeping practice.

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One common problem is setting up procedures to log business mileage accurately. This typically means either incurring software expenses to purchase a mileage tracker or devoting extra resources to ensuring you correctly record and report on all business mileage.

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The second is over-reimbursing (or under-reimbursing) employees. Because gas prices and maintenance costs vary widely by region, the standard mileage rate doesn’t compensate all employees equally depending on the cost of living in their area.

Mileage rate alternatives: Car allowance vs. FAVR vs. actual expenses method

Depending on your business travel needs, the standard mileage rate isn’t always the best method to reimburse business mileage. There are several other methods of reimbursing vehicle expenses, including car allowances, FAVR, and the actual expenses method.

Car allowance

Car allowances add a fixed amount to employees’ paychecks to cover car maintenance and fuel prices. However, much like mileage reimbursement, car allowances often underpay some employees while overpaying others.

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Unlike mileage reimbursements, which are tax-deductible, car allowances are taxed like payroll expenses. To keep these expenses tax-free, opt for FAVR or the actual costs method.

FAVR

A fixed and variable rate (FAVR) program is a hybrid between car allowances and mileage reimbursement. Employees receive a monthly allowance for fixed costs like insurance and registration, plus a variable-rate reimbursement based on business miles driven.

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FAVR programs are popular because they more closely approximate the variable costs and expenses associated with using a vehicle for business purposes. Just like mileage reimbursement, you must log each business trip if you use this method.

Actual expenses

Finally, the IRS allows businesses to itemize and deduct the actual expenses of owning and operating a vehicle. Rather than reimbursing employees with an estimate, actual costs track the total amount spent on a vehicle for business purposes. This eliminates the risk of under- or over-reimbursing employees since the numbers directly reflect reality.

Automate business mileage tracking with Ramp

No matter which method you choose to calculate employee mileage reimbursements, it’s important that you have a way to track business mileage accurately.

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Ramp’s expense reimbursement software makes it easy to automate mileage tracking, recordkeeping, expense reporting, and more in a single platform:

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• Accurate mileage calculations: Ramp integrates directly with Google Maps so employees can easily track mileage for every business trip—no paper logbook required
• Easy receipt collection: Employees are prompted to scan and save receipts for travel expenses whenever they submit a reimbursement request
• Automated expense reimbursement: Manage your entire expense management and reimbursement process all in one place

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Watch our demo video to learn more about how Ramp’s customers save an average of 5% a year.