What is a Mile Reimbursement Rate?
The business mileage reimbursement rate is an optional standard mileage rate used for computing the allowable business deduction, for Federal income tax purposes, for the business use of a vehicle.
The law states that the taxpayer may deduct either the actual expense amount or an amount computed using the standard mileage rate, whichever is greater.
Who is Eligible for Mileage Reimbursement?
If you use your vehicle for business purposes, you are eligible to obtain compensation in the form of mileage reimbursement from your employer.
The mileage reimbursement covers all costs related to owning and driving your car when used in the capacity for business purposes. Mileage reimbursement is typically paid at a cents-per-mile rate.
What is Labor Code 2802?
The main requirement of California Labor Code 2802 is for the expense incurred to be both reasonable and necessary for the employee to do his/her job to be fully compensated. Work-related expenses eligible to be reimbursed under Labor Code 2802 include:
- Travel expenses
- Training/education costs
- Fees for taking part in conferences
- Costs incurred by using a personal cell phone to perform job duties
- Work uniform costs
- Driving costs which include mileage reimbursement for the mileage driven and paid tolls
Should Mileage Reimbursement be Included in Payroll?
Federal law does not require employees to offer mileage reimbursement to employees, and the IRS does not have any specific federal mileage reimbursement rules. However, employers are still required to follow minimum wage laws if they don't offer mileage reimbursement.
How Can Mileage Reimbursement Rates Be Calculated?
There are 4 different ways to calculate your vehicle expenses incurred while on the job in California:
- A “gas stipend” or regular lump sum payment that covers all the costs of using the vehicle,
- Reimbursement based on the number of miles driven,
- Reimbursement based on your actual expenses, or
- A hybrid calculation uses fixed rates for certain expenses, like insurance, and variable rates for others, like fuel.
All of these methods are only tasked with covering your necessary and reasonable expenses. Unnecessary vehicle expenses may not be covered.
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