How to calculate mileage reimbursement: Rules and rates for 2025

Mileage reimbursement—or mileage compensation for employee use of personal vehicles—may seem confusing. When your employees use their personal vehicles for business purposes, there’s a lot to keep in mind. You need to understand current IRS mileage reimbursement rates, associated tax rules, and how to keep track of business expenses to stay compliant and to reimburse your team properly.

However, the process is actually pretty straightforward once you understand how the mileage reimbursement process works.

In this article, we explain exactly how to calculate mileage reimbursement for business travel, including the different methods and tax implications for your business. Or, jump to Ramp's mileage pay calculator.

How to calculate reimbursement for mileage

Mileage reimbursement is the process of compensating employees for the costs they incur when they use their personal vehicles for business travel. Each year, the IRS publishes a standard mileage rate as a benchmark for what you can write off as a business expense on your tax return. The IRS mileage rate for 2025 is 70 cents per mile, up 3 cents from the 2024 rate of 67 cents per mile​.

To calculate a mileage reimbursement, multiply the number of miles driven by the current mileage rate set by your state or the IRS, whichever applies. Here’s a simple formula to calculate mileage reimbursement:

Business miles driven * Mileage rate = Reimbursement amount

As an example, suppose you drove 100 miles for business, and your company reimburses mileage at the standard mileage rate. To calculate your reimbursement, you’d multiply the total miles driven (100) by the IRS standard mileage rate for 2025 (70 cents per mile) to determine your total reimbursement:

100 miles * $0.70 per mile = $70.00 reimbursement

Bookmark Ramp's mileage reimbursement calculator below to calculate your mileage compensation on-the-go.

How often should you 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.

Many businesses choose to reimburse employees for their travel costs every month. Depending on the number of employees you have and how frequently they travel, you could also reimburse them quarterly or even after each individual trip.

But there’s one thing to remember: Of the amount you reimburse your employees for mileage expenses surpasses the IRS standard mileage rate for the given tax year, the excess amount is treated as taxable income.

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

The standard mileage rate might not be the best method to reimburse business mileage for your company’s needs. There are other methods of reimbursing vehicle expenses to explore, including:

• Car allowances
• fixed and variable rate (FAVR)
• Actual expenses method

Car allowances

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

Unlike mileage reimbursements, which are tax-deductible, car allowances are taxed like payroll expenses. In contrast, the FAVR or the actual costs methods keep these expenses tax-free.

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.

FAVR programs are popular because they more closely approximate the variable costs and expenses associated with using a vehicle for business purposes. Like mileage reimbursement, you must log each business trip using 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 the real cost of business travel and vehicle ownership.

Automate business mileage tracking with Ramp

No matter which method you choose to calculate employee mileage reimbursements, it’s essential that you have a way of calculating mileage reimbursement accurately.

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

• 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 in one place

Check out our interactive demo environment and see why Ramp customers save an average of 5% annually.