Employers reimburse employees for their business expenses. The most common reason for reimbursement is the mileage reimbursement. If an employee operates his or her own vehicle for business purposes, the employer should reimburse the employee either based on the actual expenses of operation or the standard mileage rate.
The federal law doesn’t require employers to reimburse employees for their out-of-pocket business expenses. However, it isn’t acceptable for most employees if the employer doesn’t reimburses the employee. Because the employee is contributing to the business, these should be given back to the employee.
At the time of writing, the mileage reimbursement rate for business is 57.5 cents per mile driven. This is likely to be changed by the IRS due to inflation and changes to the cost of living.
How to calculate mileage reimbursement?
The way that mileage reimbursements is calculated along with the mileage deduction is quite simple. The number of miles driven for business must be multiplied by the business mileage rate.
For example, if an employee drove 100 miles for business purposes, the reimbursement should be $57.5. Any reimbursement over that amount is going to be taxable.
If the employer reimburses the employee more, the excess amount must be returned back to the employer within a reasonable period of time. This refers to 120 days in most cases. If the excess amount paid isn’t returned back to the employer, this amount will count towards the employee’s wage, thus, become taxable.
Where can I see the reimbursements?
The employer reimbursements are reported on Form W-2, Wage and Tax Statement on Box 12 with the corresponding code. The W-2 Box 12 code for employee reimbursements is “L”. If this isn’t entered and the reimbursements are added to the employee’s wages, it will be taxable.
My employer doesn’t reimburse mileage, what to do?
Your employer should reimburse you for the expenses you take on yourself. If that isn’t the case though, you can request reimbursement from your employer whether verbally or with a request letter. Either way should work just fine. If the employer doesn’t reimburses you for mileage, it may be the time for looking for another job but only if you have expenses at a constant basis.
Will I pay tax on reimbursements?
No. The reimbursements aren’t taxable since it isn’t an income. This is why employers report reimbursements on Form W-2 using the special code on Box 12 so that it isn’t taxable.
Can I deduct mileage reimbursements?
If you’re an employer, all reimbursements are tax deductible. This isn’t the case for employees though. The IRS only allow employers to deduct the reimbursements since they are considered as business expense. The employee makes the business expense and the employer reimburses the employee for that amount. So, the reimbursements are count towards business expenses which are deductible.