Mileage reimbursement rules and rates for 2024

On its surface, mileage reimbursement seems 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. However, once you understand how the mileage reimbursement process works, it’s pretty straightforward. 

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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.

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The mileage reimbursement rate set by the Internal Revenue Service (IRS) encompasses:

• Gas
• Wear and tear expenses
• Car insurance and 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 particular time. Side note: the IRS mileage rate doesn't incorporate coverage for tolls—these have to be claimed separately, with a receipt. 

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To understand how the IRS mileage reimbursement formula works, say a salesperson drives 50 miles to meet with a potential client, and the trip only burns $15 worth of gas. The mileage reimbursement will likely come out to almost double this amount, because it takes into account that the distance driven brings the car closer to needing standard care like oil changes and tire replacements.

How mileage reimbursement works

The IRS sets a standard mileage rate every year. As of 2024, the mileage rate for businesses has increased to 67 cents per mile, which is up 1.5 cents from the 2023 rate of 65.5 cents per mile​.

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Note that the standard deduction is merely a guideline and a limit. 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 run the risk of bringing employee pay under the federal minimum wage.

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The legal requirements for mileage reimbursement vary from state to state. California, Rhode Island, and Illinois, for example, have laws mandating mileage reimbursement. Other states, meanwhile, 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 business 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 mileage reimbursement, you’d multiply 100 miles by the IRS standard mileage reimbursement rate for 2024, which is 67 cents per mile.

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100 miles × $0.67 per mile = $67.00

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 commuting to client meetings, attending events, or completing work-related tasks.

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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 for shouldn’t surpass the IRS standard mileage rate for any given year. If it does, then the excess amount will be taxed as income.

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Challenges with mileage reimbursement

While mileage reimbursement is a common part of expense reports and bookkeeping, it can introduce challenges to any accounting practice. One common problem is setting up procedures to log business mileage accurately. This typically means either incurring costs to automate expense-keeping or devoting extra resources to making sure all of it is recorded and reported on correctly. 

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The second is over—or under—reimbursing employees. Because car maintenance and gas vary widely by region, the standard mileage rate doesn’t impact all employees equally.

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Alternatives: Mileage reimbursement vs. car allowance vs. FAVR

If you’re trying to reduce T&E costs, mileage reimbursement may not be the best option. There are several ways to reimburse car-related expenses, including car allowance, FAVR, and actual cost.

Car allowance

Car allowances add a fixed amount to paychecks meant to cover car maintenance and fuel. 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 payments or salaries. 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 miles driven.

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FAVR programs are widespread 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 with this method.

Actual cost

Finally, the IRS allows businesses to itemize and deduct the actual expenses of owning and operating a vehicle. Rather than reimburse 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, as the numbers reflect reality.

Automate business mileage tracking with Ramp

The easiest way to implement the “actual cost” method of covering your team’s business car travel is by automating it with corporate cards.

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Specifically, you can distribute Ramp’s cards to your employees, and make use of the broad set of automated accounting, reporting, and spend limit tools they come packaged with. That means no more chasing down reimbursement forms and logging every business trip into a spreadsheet—you can simply automate the whole process using our technology. 

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If your T&E policy includes spending limits, you can set controls on your employee business gas cards to make sure every team member spends within it. Every business trip registers in a single dashboard—giving you complete visibility into your company’s financials and neat documentation come tax time.