The company owner is responsible for reimbursing the company’s employees for the cost of using their private cars. Providing mileage reimbursement benefits employees and the company owner, since employees are compensated for using their own vehicles for business purposes, and the owner doesn’t have to purchase company vehicles. With a mileage tracker app you don’t need to track your employees’ mileage on paper any more.Copy HTMLCopy text
How do employees get reimbursed for mileage?
For an in-depth understanding of how employees can get reimbursed for mileage, let’s explore the three methods – fixed car allowances, IRS standard mileage rate, and F.A.V.R. (fix and variable costs).
If an employee uses their private cars for business purposes, they should be reimbursed for mileage, to cover the gas price, insurance, or maintenance. Mileage reimbursement may be kept on paper, but then you should expect to spend 3-5 hours every month on the task. Use a mileage tracker app, and reduce the time to 7 minutes/month.
Let’s take a closer look at the three methods of mileage reimbursement.
The three methods of mileage reimbursement
A fixed car allowance is a set amount, paid by the owner to the employees using their personal vehicles for business purposes. Payable monthly, bi-weekly, or weekly, it covers fuel, insurance, and maintenance costs. It has pros and cons, and the maintenance is a pro, while the fixed amount means you get the same allowance regardless of the cost or the number of miles you drive. You must remember that the car allowance is taxable.
IRS Standard Mileage Rate
One of the best practices used for mileage reimbursement is IRS (Internal Revenue Service) standard mileage rate. It includes the gas, or oil, car insurance, parking fees, and maintenance costs. If paid under an accountable plan, it isn’t reported as pay, which gives both the employer and the employee the opportunity for a tax reduction. The Internal Revenue Service mileage rate is 58.5 cents (miles driven between January 1 and June 30, 2022), and 62.5 cents from July 1, 2022, to December 31, 2022.
The FAVR method for mileage reimbursement
Employees can be also reimbursed for mileage by FAVR, which stands for Fixed and Variable Costs, the system of the Internal Revenue Service. This is the way of tax-free mileage reimbursement of fixed and variable costs.
The fixed costs include insurance, registration and license fees, taxes, and depreciation, in short, all the costs incurred by simply owning a car. Variable costs are connected with driving a car and may include the gas price, maintenance, or the cost of tires.
They are also related to mileage driven – the more you drive, the more often you have to replace your tires. The car owner receives both a set amount to cover the fixed costs and a variable amount for the variable costs.
How to track mileage
Don’t waste your time keeping track of the mileage on paper – with a mileage tracker app you can spend only 7 minutes per month on mileage reimbursement.
One of the most trustworthy apps is MileageWise, which allows you for automatic mile tracking. It may give you an average mileage tax deduction of $12,000 (1 tax year per car), leaving the other mileage tracker apps far behind.
In case of forgotten past mileage, the AI-powered technology is able to recreate the mileage, on the basis of your previous journeys. With MileageWise’s mileage tracker app, you get 3+1 automatic tracking modes: vehicle movement monitoring, Car Bluetooth tracking, Plug’N’Go phone charge tracking, and manual recording. It’s 100% IRS-compliant and offers a VIP mileage log preparation service.