Mileage reimbursement 2025: IRS rates, rules, and tracking

Mileage reimbursement compensates employees for using their personal vehicles for business travel. It’s often included in a company’s expense reimbursement policy and plays an important role in overall expense management.

IRS mileage rules around deductions and reimbursements can be complex, so it’s important to have a clear policy that ensures compliance and accurate recordkeeping. This guide explains how mileage reimbursement works, the 2025 IRS mileage rates, tax and compliance rules to know, and best practices for tracking, policy creation, and employee reimbursements.

What is mileage reimbursement?

Mileage reimbursement is the process of repaying employees, contractors, or self-employed individuals for using their personal vehicles for business travel. It helps cover costs such as gas, maintenance, insurance, and wear and tear from driving for work purposes, but it doesn’t apply to commuting between home and a regular workplace.

Unlike wages, which count as taxable income, mileage reimbursement repays business expenses. When handled correctly, it isn’t taxable for employees and can generally be deducted as a business expense for employers.

The federal government doesn’t require employers to reimburse mileage, but some states do. The IRS publishes a standard mileage rate each year to simplify compliance and reflect current vehicle operating costs. Following this rate helps keep reimbursements tax-free and recordkeeping simple, even if your company sets its own policy.

What does mileage reimbursement cover?

Mileage reimbursement goes beyond just covering the cost of gas. The IRS rate is designed to reflect all typical vehicle expenses an employee incurs while driving for work. These often include:

• Alternative fuel costs (ethanol, electricity, etc.)
• Maintenance
• Washing and cleaning
• Wear and tear
• Depreciation
• Car insurance
• Registration fees
• Licensing fees

Keep in mind that mileage reimbursement doesn’t cover every driving cost. Commuting between home and the office is neither reimbursable nor tax-deductible. Expenses such as tolls or parking fees incurred during business travel should be reimbursed separately under your company’s travel expense policy.

What counts as reimbursable business mileage?

Employees should be reimbursed whenever they use their personal vehicles for legitimate business purposes. Common examples of reimbursable business mileage include:

• Traveling to an off-site business meeting
• Driving to the airport or train station for a business trip
• Picking up a business partner or co-worker from the airport for a meeting
• Visiting customers, clients, or prospects
• Transporting materials, equipment, or supplies to or from a worksite or office

What is the standard mileage rate?

The IRS standard mileage rate is the dollar amount you can deduct per business mile driven—or use as a benchmark for employee reimbursements. For 2025, the business rate is 70 cents per mile.

The IRS updates these rates annually to reflect changes in vehicle operating costs. Many employers use the standard rate to keep reimbursements simple and non-taxable, though you can set your own policy.

Medical, charitable, and moving mileage

In addition to the business rate, the IRS sets separate rates for other purposes:

When to use the standard vs. actual expense method

You can choose between the standard mileage rate or the actual expense method. The standard mileage rate is simpler: multiply business miles by the IRS rate for the year. It’s best when you want an easy, consistent calculation without tracking every cost.

The actual expense method totals all vehicle costs, such as fuel, maintenance, insurance, registration, and depreciation, and allocates the business portion. It can yield a larger deduction for high-cost or heavily used vehicles, but it requires detailed recordkeeping.

To qualify for the standard mileage rate, you must use it in the first year the car is placed in service for business. You can switch to actual expenses in later years, but not the other way around.

How to create a mileage reimbursement policy

A written mileage reimbursement policy sets expectations, keeps reimbursements consistent, and helps you stay compliant. At a minimum, outline your rate, who qualifies, what documentation is required, and how approvals and payments work.

Steps to build your policy

1. Determine your rate: Use the IRS standard mileage rate as a baseline, then account for local factors like fuel prices and cost of living. Review annually.
2. Outline the reimbursement process: Specify how employees report mileage, what documentation is required, and how and when reimbursements are paid. Set submission timelines and approver roles.
3. Define eligible trips: Clarify which trips qualify (e.g., off-site meetings, client visits, transporting materials). Remind employees that commuting is not reimbursable.
4. Keep accurate records: If you plan to write off reimbursements, maintain organized, accurate records. The IRS provides specific guidelines for car expense records.

State considerations

Some states require reimbursement for necessary business expenses, including personal vehicleuse for work. If you have employees in California, Illinois, or Massachusetts, or in states with broader expense reimbursement rules such as New York, ensure your policy reflects applicable state law

Sample mileage reimbursement policy template

Below is a simple example of how you might structure a clear, compliant mileage reimbursement policy. You can adapt it to fit your company’s rate, approval process, and regional requirements:

Mileage tracking and documentation requirements

To qualify as non-taxable under the IRS’s accountable plan rules, employees must keep detailed mileage logs for each trip, including the date, starting and ending locations, business purpose, and total miles driven. This documentation ensures reimbursements remain compliant and deductible for the business.

Mileage-tracking apps make it easy to record miles driven for personal vs. business purposes. Many use GPS-based tracking and can integrate directly with expense management systems, automatically capturing trip details for accurate reporting. If you prefer to keep things low-tech, you can also require your team to maintain a manual mileage log or spreadsheet for any business travel.

This logbook should include the trip’s date, starting and ending locations, business purpose, and total miles driven. For the most accurate estimate, it’s best to record odometer readings before and after each trip, rather than relying solely on map estimates.

Example mileage log entry

How to calculate mileage reimbursement

To calculate mileage reimbursement, multiply the number of business miles driven by the reimbursement rate set by your employer or the IRS, whichever applies.

Reimbursement amount = Business miles driven * Mileage rate

For example, if you drove 100 miles for business and your company reimburses at the 2025 IRS standard mileage rate of 70 cents per mile:

100 miles * $0.70 per mile = $70.00 reimbursement

Special considerations

If employees use a company vehicle for both personal and business purposes, only the business portion of mileage can be reimbursed or deducted. The same rule applies to vehicle expenses claimed on tax returns.

Some states, such as California, Illinois, Massachusetts, and New York, require employers to reimburse necessary business expenses, including mileage, regardless of federal law. Check your state’s labor or tax authority for specifics, and make sure your mileage reimbursement policy aligns with local regulations.

Companies that reimburse frequent drivers may also consider a Fixed and Variable Rate (FAVR) program. This combines a fixed monthly allowance for ownership costs with a variable mileage rate that adjusts with fuel prices and usage. FAVR programs can provide a fairer, more tailored reimbursement structure for high-mileage employees.

Is mileage reimbursement considered taxable income?

When you reimburse employees at or below the IRS standard mileage rate, the amount isn’t taxable income. The IRS treats these payments as tax-free reimbursements under an accountable plan, provided employees submit proper documentation. Staying within the standard rate also helps you avoid payroll taxes.

Mileage reimbursement becomes taxable under a non-accountable plan—for example, if you pay above the IRS rate, don’t require mileage logs, or issue a flat allowance unrelated to actual miles. Any excess over the IRS standard must be reported on the employee’s W-2 and is subject to income and payroll taxes.

What if you pay above the standard rate?

If your company reimburses at a higher rate than the IRS standard—say, 75 cents instead of 70 cents—the extra 5 cents per mile counts as taxable wages. To simplify compliance, align your policy with the current IRS rate.

The Tax Cuts and Jobs Act (TCJA) suspended employee deductions for unreimbursed business expenses through 2025, so maintaining a compliant reimbursement policy ensures employees aren’t covering business costs out of pocket.

Best practices for employers

Even when not required, reimbursing employee mileage helps your business stay compliant and competitive. A clear, well-communicated policy makes the process easier for everyone involved.

Review your mileage reimbursement policy regularly to ensure rates align with the latest IRS guidelines and current vehicle costs. Communicate updates clearly, and make sure employees know what qualifies as reimbursable travel and how to submit mileage logs.

Consistent enforcement and occasional audits help prevent overpayments or errors. Using expense management software or mileage-tracking apps can also reduce manual work and improve accuracy. When employees trust that reimbursements are handled fairly, they’re more likely to follow your process and less likely to make costly mistakes.

Common mileage reimbursement mistakes to avoid

Even well-designed mileage programs can break down in practice. Watch out for these common mistakes:

• Reimbursing commuting mileage: Travel between home and the office isn’t reimbursable.
• Mixing personal and business miles: Require employees to separate personal travel from business use.
• Poor recordkeeping: Insist on complete mileage logs and keep them organized for audits.
• Delayed reimbursement processing: Set clear submission deadlines and process payments promptly.
• Using outdated rates: Update your reimbursement rate annually to match the current IRS standard.

Training employees on your policy and using mileage-tracking software can help prevent these issues before they affect compliance or employee satisfaction.

How Ramp streamlines mileage reimbursement compliance

Managing employee mileage reimbursements can quickly become a compliance nightmare. Between tracking IRS-standard mileage rates, verifying trip purposes, maintaining proper documentation, and ensuring timely reimbursements, finance teams often find themselves buried in spreadsheets and paper receipts while trying to stay audit-ready.

Automate mileage compliance from start to finish

Ramp's expense management software transforms this manual, error-prone process into an automated workflow that keeps you compliant without the headache. When employees submit mileage expenses through Ramp's mobile app, they can automatically calculate reimbursements using the current IRS standard mileage rates.

The platform requires employees to capture essential compliance details upfront, including trip purpose, start and end locations, and business justification, ensuring you have complete documentation for every mile claimed.

Catch errors before they become audit issues

What really sets Ramp apart is how it handles the compliance heavy lifting behind the scenes. The system automatically flags expenses that fall outside your company's mileage policy parameters, whether that's excessive mileage claims or missing trip details. This proactive approach catches compliance issues before they become audit problems.

Plus, with real-time visibility into all mileage expenses, finance teams can spot patterns and anomalies instantly, like an employee consistently claiming round trips that don't align with their stated destinations.

Keep every record audit-ready

The platform also maintains a complete digital audit trail for every mileage reimbursement, storing all supporting documentation, approval workflows, and payment records in one searchable system.

When tax season or an audit rolls around, you're not scrambling through filing cabinets or email threads. Everything you need is organized, timestamped, and ready to export. This level of automation and organization doesn't just save time; it dramatically reduces your compliance risk while ensuring employees get reimbursed faster.

Make mileage reimbursement easy with Ramp

Beyond compliance, Ramp's expense management software simplifies your entire mileage reimbursement workflow. The platform integrates directly with Google Maps for precise distance calculations and supports international mileage reimbursements in Canada, Spain, Germany, France, and the United Kingdom.

With everything from policy creation to payment processing in one platform, you can finally ditch the spreadsheets and manual processes.

Ready to see how it works? Try an interactive demo to explore Ramp's automated expense management software.