• Mileage reimbursement to employees is normally not part of their compensation.yellow car, a honda japanese sport car model image by alma_sacra from Fotolia.com
  
  Mileage reimbursement is a tax-deductible expense for employers that is not taxable compensation for employees if IRS rules are followed. The tax treatment by the employer and the employee is affected by the amount of reimbursement and the type of records maintained.
  
  

Accountability Requirements

• Employer reimbursements for mileage must cover vehicle use incurred by an employee conducting business services for the employer. IRS rules require employees to provide adequate records relating to reimbursed business mileage. The employer must receive a record that documents the date, place, and business nature of vehicle use. A single record is adequate for several business uses of a vehicle on an uninterrupted round trip. Minimal personal use, such as stopping for lunch between two business locations, is considered uninterrupted use.
  
  To receive mileage reimbursement, employees must provide an accounting of business miles driven within a reasonable time. The IRS considers a reasonable time as 60 days after the miles were driven for which reimbursement is requested or 30 days after an employer advance for mileage reimbursement.
  
  Employees must return any excess reimbursements for which mileage records were not provided to employers or reimbursements that exceed the IRS standard mileage rate. The IRS establishes a standard mileage rate for business at least annually. The rate is based upon a study of the fixed and variable costs for operating a vehicle.
  
  

Employer Effect

• Employers are not required to report mileage reimbursement as employee compensation if accountability standards are met regarding records of business mileage and reimbursement of no more than the IRS standard mileage rate.
  
  Mileage reimbursements to employees that do not meet accountability requirements are added to employee compensation and reported in Box 1 of From W-2. Therefore, amounts paid to employees who do not provide a record of vehicle business use or that exceed the IRS standard mileage rate are taxable compensation.
  
  

Employee Effect

• Employees do not have any mileage reimbursement added to taxable compensation if reimbursements are for mileage with a business purpose, documented to their employers, and not in excess of the IRS standard mileage rate.
  
  Employees should maintain a record of all business mileage and total vehicle mileage for all purposes. These records should include mileage advances and mileage reimbursements from the employer. If all business mileage is reimbursed at the IRS standard mileage rate, the employee is not entitled to a tax deduction. However, if not all mileage is reimbursed or the reimbursement amount is less than the IRS standard mileage rate, employees may deduct the portion that is not reimbursed. In addition, an employee may deduct mileage expense if any reimbursed mileage is added to compensation.
  
  The tax deduction is available for employees who itemize deductions on their tax returns. In addition to deduction of business miles using the IRS standard mileage rate, an employee may deduct parking fees and tolls related to vehicle business use.
  
  Additional tax deductions are state and local vehicle property taxes represented by business miles as a percentage of total miles driven.