The guide to employee mileage reimbursement for employers

Employee mileage reimbursement is a financial arrangement in which businesses repay employees for costs incurred while using personal vehicles for work-related travel. This practice creates a win-win situation: Employees avoid shouldering business expenses, while employers maintain accurate records for tax deductions without the complexity of managing a company vehicle fleet.

The IRS provides clear guidelines to standardize this process, publishing an annual standard mileage rate (70 cents per mile for 2025) that factors in average costs for gas, depreciation, insurance, and maintenance. This rate serves as both a benchmark for businesses and the maximum tax-deductible amount for employers using an “accountable plan” where reimbursements don't count as taxable income to employees if they’re properly documented.

Companies can choose between two main reimbursement approaches. The standard rate method simply multiplies business miles by the IRS rate (or a company-set rate). The “actual expense method” reimburses based on detailed tracking of all vehicle-related costs and calculating the business-use percentage. While the standard rate offers simplicity and administrative efficiency, the actual expense method may better reflect true costs for employees with higher vehicle expenses or those driving in regions with above-average costs.

Determining which miles count for reimbursement can feel unclear. Let's break down the difference between business miles that qualify for reimbursement and personal driving that doesn't.

Qualifying work-related mileage

Work-related mileage encompasses various driving activities employees undertake specifically for business purposes. This typically includes travel to client meetings or presentations outside the regular workplace, driving between different company locations or job sites during the workday, business-related errands like bank deposits or supply pickups, and attendance at conferences, training sessions, or industry events. Many companies also reimburse for airport trips when employees travel for business purposes. The key factor determining qualification — whether the travel directly serves a business function beyond normal commuting.

Non-qualifying mileage

Not all driving during work hours qualifies for reimbursement. Standard commuting between home and the regular workplace is generally considered a personal expense, regardless of distance. This remains true even when bringing work materials home or making business calls during the drive. Personal side trips during business travel, such as stopping for dinner or shopping while returning from a client meeting, typically don't qualify for reimbursement. Similarly, if an employee chooses to work from a coffee shop or alternative location for personal convenience, that travel usually isn't reimbursable. These distinctions help maintain clear boundaries between business and personal expenses while preventing potential tax issues for both employers and employees.

The question of whether you must reimburse employees for mileage depends largely on where your business operates. While federal law doesn't explicitly mandate mileage reimbursement, the landscape gets more complicated when you look at state-level requirements.

Several states have enacted specific laws requiring employers to reimburse employees for business expenses, including mileage. California leads with its comprehensive Labor Code Section 2802, which requires employers to reimburse all necessary business-related expenses. Massachusetts, Illinois, Montana, Pennsylvania, New York, and several other states have similar provisions that effectively require mileage reimbursement. These laws are designed to prevent employers from passing business costs onto employees.

Even in states without explicit requirements, failing to reimburse employees for substantial business mileage could potentially violate the Fair Labor Standards Act if it effectively reduces an employee's earnings below the federal minimum wage. Offering fair mileage reimbursement is also a good business practice that helps attract and retain talent, maintains employee satisfaction, and ensures your team isn't personally subsidizing company operations. Many businesses choose to reimburse mileage regardless of legal requirements, recognizing it as both an ethical practice and a relatively simple way to support employees using personal assets for company benefit.

Calculating mileage reimbursement seems straightforward on the surface, but businesses have options when determining the right approach. Companies typically choose between two primary methods: using the standard mileage rate or calculating based on actual expenses. Each offers distinct advantages depending on your business needs and administrative capacity.

Standard mileage rate

The IRS standard mileage rate provides businesses with a simple, streamlined approach to mileage reimbursement. For 2025, this rate is set at 70 cents per mile, reflecting the typical costs of operating a vehicle. Implementing this method requires minimal effort — employees simply track their business miles and multiply by the standard rate.

For example, if an employee drives 120 business miles in a month, their reimbursement would be calculated as: 120 miles × $0.70 = $84. This calculation remains consistent regardless of the employee's actual vehicle costs or fuel efficiency. Companies can also choose to set their own rate below the IRS standard, though reimbursing at a lower rate may create tax consequences where the difference becomes taxable compensation to the employee.

Many businesses prefer this standard method for its administrative simplicity and the fact that it eliminates debates about what constitutes a reasonable expense. The standard rate provides a clean, defensible way that works well for organizations with moderate business driving needs across a variety of vehicle types.

Calculating reimbursement for actual expenses

Some companies opt to reimburse based on actual vehicle expenses, which more precisely matches reimbursement to real costs but requires significantly more documentation and calculation. This method tracks all vehicle-related expenses and then applies a business use percentage based on mileage allocation.

Under this approach, employees must document all vehicle expenses including:

• Fuel costs with detailed receipts
• Routine maintenance such as oil changes, tire rotations, and fluid replacements
• Repairs and part replacements
• Insurance premiums
• Vehicle depreciation
• Registration and license fees
• Loan interest or lease payments

The business then calculates what percentage of the vehicle's use was for business purposes. If an employee drove 20,000 total miles in a year with 5,000 for business, 25% of the total vehicle expenses would be reimbursable.

For example, if annual vehicle expenses totaled $8,000 and business use was 25%, the reimbursement would be $2,000. This method works particularly well for employees with high-value vehicles, those driving in areas with unusual operating costs, or situations with exceptionally high business mileage.

The actual expense method requires substantial record-keeping from both employees and employers. Companies must establish clear policies regarding acceptable documentation, expense categories, and submission timelines. Many businesses that choose this route implement specialized expense-tracking software to manage the increased administrative burden while ensuring accuracy and compliance. If this all becomes too cumbersome, organizations might also weigh whether providing company-owned fleet vehicles with clear usage guidelines is the better route.

Mileage reimbursement has important tax consequences for employers and employees. Understanding these implications helps businesses avoid unexpected tax liabilities while maintaining compliant reimbursement programs.

Tax-free reimbursements under accountable plans

For mileage reimbursements to remain tax-free, they must meet the IRS requirements for an accountable plan. Because the expenses must have a clear business purpose beyond normal commuting, employees must adequately document their business mileage with proper logs or records. The reimbursement amount also cannot substantially exceed actual expenses, which is why many businesses rely on the IRS standard mileage rate as a safe harbor.

Documentation requirements include recording the date, destination, business purpose, and mileage for each trip. For related expenses like parking fees, tolls, or fuel (if using the actual expense method), proper business receipts must be maintained. The IRS specifically looks for receipts with all these details. Without these records and supporting business receipts, even legitimate business travel reimbursements could be classified as taxable income. Companies using accountable plans benefit from avoiding payroll taxes on these payments, while employees receive the full reimbursement without income tax withholding.

Taxable reimbursements under non-accountable plans

Reimbursements that don't meet accountable plan requirements become fully taxable to employees. Common situations include flat car allowances without documentation requirements, payments significantly exceeding the IRS standard rate, or reimbursements without adequate business purpose verification. When reimbursements are considered taxable, they must be reported as wages on W-2 forms and are subject to income tax withholding and employment taxes.

Even when using the IRS rate, exceeding it creates tax complications. If a company reimburses at 75 cents per mile when the IRS standard mileage rate is 70 cents, those extra 5 cents per mile become taxable income to the employee. The IRS has consistently ruled that payments exceeding their standard rates require payroll tax deductions, creating additional administrative work for employers.

The safest approach for tax compliance is maintaining a properly structured accountable plan with clear documentation requirements, timely submission policies, and reimbursement rates that align with or fall below the IRS standard rate. This protects the company from unexpected tax liabilities and employees from receiving taxable compensation disguised as reimbursement.

Creating a mileage reimbursement policy that works for your business doesn't have to be complicated. With the right approach, you can develop guidelines that protect your company financially while treating employees fairly and maintaining compliance with relevant regulations.

Define policy scope and eligibility

Start by defining your policy's scope, clearly outlining which employees are eligible for reimbursement and under what circumstances. This prevents confusion and establishes clear boundaries from day one. Make sure your policy addresses both regular business travelers and occasional drivers to cover all scenarios your team might encounter.

Select the right reimbursement method

Choose a reimbursement calculation method that aligns with your business operations and overall employee expense reimbursement philosophy. While the IRS standard mileage rate offers simplicity and administrative ease, some companies benefit from actual expense calculations or fixed and variable rate (FAVR) programs. Your choice should balance accuracy, administrative workload, and employee satisfaction.

Create clear documentation

Document your policy in clear, accessible language that avoids jargon and legalese. Include practical examples relevant to your business that illustrate both qualifying and non-qualifying travel scenarios. The more specific and relevant your examples, the fewer questions and disputes you'll face during implementation.

Establish submission procedures

Establish a straightforward submission process with reasonable deadlines and clear documentation requirements. Many companies find success with monthly or bi-weekly submission cycles that align with payroll periods. Whatever timeline you choose, consistency helps employees and accounting teams manage the process effectively.

Communicate effectively

Finally, communicate your policy thoroughly through multiple channels. Add it to your employee handbook, create dedicated training sessions, and provide easy access to forms and resources. Effective communication prevents misunderstandings and demonstrates your commitment to transparency.

Remember, good policy evolves over time. Build in a regular review process to evaluate effectiveness and make necessary adjustments as your business grows and regulations change. The most successful policies strike a balance between protecting company interests and treating employees fairly for their business-related vehicle use.

Implementing a mileage reimbursement program comes with several potential pitfalls that can create headaches for both employers and employees. Recognizing these challenges early helps you develop solutions before they become big problems.

Inaccurate mileage tracking

One of the most persistent challenges is ensuring accurate mileage reporting. Manual logging often leads to estimation errors, forgotten trips, or occasionally, deliberate inflation of miles traveled. Employees may round up distances or forget to record exact starting and ending points, creating discrepancies that add up over time.

How to track mileage effectively

Implement digital tracking tools that use GPS technology to automatically record business trips. Brex makes this simple with built-in mileage tracking that calculates distances automatically and creates proper documentation for each trip. This eliminates guesswork and provides verifiable records that satisfy IRS requirements while making the process nearly effortless for your team.

Confusing reimbursable vs. non-reimbursable travel

Many employees struggle to distinguish between reimbursable business travel and non-reimbursable commuting. This confusion leads to either inappropriate reimbursement requests or employees failing to claim eligible business miles.

How to determine what’s reimbursable

Develop clear guidelines with specific examples relevant to your business. With Brex, you can customize your mileage policy directly in the platform, helping employees understand what qualifies before they submit. Brex’s expense management automation software can be configured to automatically flag common commuting routes or apply your specific reimbursement rules, reducing confusion and ensuring consistent application of your expense policies.

Administrative burden

Processing mileage reimbursements can create significant work for accounting teams, especially in companies with many traveling employees. Manual review of mileage logs, verification of business purposes, and processing individual payments consume valuable time and resources.

How to avoid administrative burden

Streamline your process with automation. Brex handles the entire workflow from submission to reimbursement in one platform. Mileage tracking integrates seamlessly with your other expense categories, giving finance teams a complete picture while reducing processing time. The system automatically applies your reimbursement rates and can batch-process payments, turning hours of administrative work into minutes.

Tax compliance risks

Perhaps the most serious challenge involves tax compliance. Improper documentation, overpayment without proper taxation, or inconsistent application of reimbursement policies can trigger IRS scrutiny and potentially costly audits.

How to avoid tax compliance risks

Ensure your policy explicitly follows IRS accountable plan requirements. Brex helps maintain compliance by automatically generating the required documentation. The platform applies current IRS rates by default (while allowing customization) and maintains digital records of all business purposes, dates, and locations. This creates an audit trail that helps protect your company from compliance issues while making tax season reporting straightforward.

Addressing these challenges proactively creates a mileage reimbursement program that works smoothly for everyone involved. Brex handles the technical aspects, so your team can focus on their work instead of tracking miles and managing paperwork.

Employee mileage reimbursement doesn't have to be a source of frustration for your business. With a clear understanding of the requirements, thoughtful policy development, and the right tools, you can create a program that treats employees fairly while protecting your company from unnecessary tax complications. From determining what qualifies as reimbursable mileage to selecting the right calculation method, each aspect of your program contributes to its overall effectiveness.

Remember that the most successful mileage reimbursement programs balance compliance, accuracy, and simplicity. Regular policy reviews ensure you stay current with changing IRS rates and evolving business needs. Clear communication and consistent application of your policies help prevent misunderstandings while creating a culture of transparency around business expenses.

Brex's expense management software simplifies this entire process by automating mileage tracking, maintaining proper documentation, and streamlining reimbursement workflows. When combined with Brex corporate cards, businesses gain comprehensive visibility into all business spending, from mileage to meals to merchandise, in one intuitive platform. This integrated approach reduces administrative burden while enhancing compliance and control over your company's expenses.

Tiffany Miller, Director of Accounts Payable at Empire Portfolio Group, a leading franchisee of Orangetheory Fitness, loves the flexibility of Brex when paying for employee expenses: “The beauty of Brex is that we could get a corporate card and employee reimbursements on the same platform. You can build a program that works for you.”

Sign up for Brex today to transform how your business handles mileage reimbursement and all your expense management needs.