Lots of employees are in a role that requires driving their personal vehicle for business. Whether that role is as a sales rep, a manager at multiple locations, a technician, traveling nurse or something else, the business miles put on the vehicle, the gas in the tank, those cost money. So if the company that employs them doesn’t reimburse them, can they claim that mileage on their taxes? Is mileage tax deductible?
The shortest answer to this question is it depends on the type of employee. If it’s a W-2 employee, mileage is not tax deductible. If employees are not reimbursed for the business miles they put on their personal vehicle, they cannot write them off on their taxes. On the other hand, those who are self-employed can. Why the self-employed and not W-2 workers? What changed? And when did this happen?
In 2017, the Trump administration passed the Tax Cuts and Jobs Act. This legislation minimized itemized deductions, curbing the business expenses tax-payers could deduct. Business mileage was one of those items. The exception to this legislation is allowing the self-employed to deduct mileage from taxes.
Additionally, those driving for medical or charity purposes can also deduct their mileage.
As stated above, employees that aren’t self-employed cannot deduct mileage on their taxes. Paying for business mileage out of pocket can be expensive. If employees aren’t receiving a mileage reimbursement from the company they work for, they should talk to their employer. Employees deserve a fair and accurate mileage reimbursement. How much your employees should be reimbursed is based on the vehicle program you decide to use at your company.
Self-employed individuals can claim business mileage deduction on their schedule C tax form. This process requires tracking the mileage for each trip. With the recorded mileage, individuals can claim the IRS mileage rate for each mile driven. Let’s look at an example.
Roger is self-employed and over the course of 2022 has accrued 8,083 miles on various trips for work. For his taxes in 2023, Roger can multiply that 8,083 by the IRS mileage rate. This is a little tricky, as 2022 has two mileage rates: 58.5 for January through June and 62.5 from July to December. Let’s say Roger drove 3,921 in the first half of the year and 4,162 in the final half. That would make (3,921 x .585) + (4,162 x .625) = $4,895.04. That’s the amount Roger can claim on his taxes. It’s also important to know what trips the IRS considers business travel.
This depends on the company. If the delivery driver is a W-2 employee with the company, they will not be able to deduct mileage on their taxes. However, if the delivery driver is employed as a contractor and keeps mileage logs, they can deduct business miles. They can also deduct the business use of other things, including parking, tolls and mobile phone usage.
Again, that depends on the company. If the business provides employees with a mileage reimbursement or some other form of compensation, this has no impact on them. If the company does not provide its employees with a mileage reimbursement, they may be placing themselves at legal risk. Some states do not require employers reimburse their employees, but class action lawsuits may still occur.
For example, companies operating in California that don’t follow labor law CA-2802 could face legal repercussions and lose thousands of dollars from not offering accurate reimbursements.
Accurate mileage logs are important. For the self-employed mobile worker, it’s essential to a tax deduction. For the W-2 employee that receive reimbursements, they won’t be paid for the business mileage they drive without them. And for W-2 employees not receiving reimbursements, mileage logs may help make the argument that being paid for mileage is necessary. To ensure IRS compliance, the mileage log must contain some essential information. It’s also important to know which mileage can be deducted.
Business mileage may seem very cut and dry. Drive for work and track the mileage. But what about a short trip to run an errand or grab lunch? What about the first drive of the day, from home to place of business. The IRS does not consider personal trips and commute mileage—I.e. running errands or driving to one’s place of work—tax deductible. They have a set of straightforward guidelines when considering business mileage.
Deducting mileage is one thing. What else can self-employed mobile workers write off on their taxes? Well, one can either use standard mileage or actual expenses. Standard mileage is intended to cover all elements of owning and operating a vehicle for business use. If you opt to use actual expenses you can deduct gas, insurance, repairs, tires and more. However, you cannot do both. Claiming mileage means you cannot also claim actual expenses.
Unless self-employed, mobile workers shouldn’t have to worry if mileage is tax deductible. Companies requiring employees to drive personal vehicles for work purposes benefit from that usage. Businesses shouldn’t burden their mobile workforce with their business expenses. Rather, they should fairly and accurately reimburse their employees. A fair and accurate reimbursement goes a long way toward retaining an engaged workforce.
Interested in learning more about the benefits of a fair and accurate mileage reimbursement?