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2014 Mileage Reimbursement Rates

mileage ratesThe IRS just announced its standard mileage rates for 2014. The new rates will be a slight decrease – a half cent – from the 2013 rates for business, medical and moving expenses.

Effective January 1, 2014, the standard mileage rates for the use of a vehicle such as a car, van SUV or pickup will be:

  • 56 cents per mile for business miles driven
  • 23.5 cents per mile driven for medical or moving purposes
  • 14 cents per mile driven in service of charitable organizations

Small business owners, employees, self-employed individuals and other taxpayers can use the standard mileage rate to calculate their tax-deductible costs for using a vehicle for business, charitable, medical or moving purposes.

What if employees use their personal vehicles for business activities?

Q. If my employees use their personal vehicles to run business errands or do work for the business, do I have to reimburse the employee at the standard mileage rate?”

A. In California, you have to reimburse expenses to employees (see Labor Code 2802 below). Most employers reimburse personal vehicle expenses using the standard mileage rate, and the business can then deduct as a business expense the amount reimbursed to the employee.

If you do not completely reimburse your employee for business use of a personal vehicle, then the employee may be able to deduct the unreimbursed expense on his or her 1040, Schedule A. In that case, you as the employer do not get to claim the deduction.

California Labor Code Section 2802(a) and Title 8 of the California Code of Regulations determine reimbursement for work-related use of a personal vehicle.

Labor Code Section 2802 states that “An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.” Subdivision (c) of Section 2802 defines “necessary expenditures or losses” to include “all reasonable costs.”

When an employee is required to use his or her personal vehicle for work-related activities, the employer must reimburse the employee for expenses related to the use of the vehicle. (Note that this does not include use of a personal vehicle to commute between home and work.)

A common practice to reimburse employees is the mileage reimbursement method. This method requires employees to keep track of mileage for work-related vehicle use. The employer then multiplies the number of miles by the current Internal Revenue Service (IRS) mileage reimbursement rate to calculate the amount owed to the employee. This rate takes into account factors such as depreciation, maintenance and repairs, and actual fuel costs.

Title 8 further outlines the following requirements:

  • Employers must compute and pay mileage reimbursement when wages are paid, or at least once per calendar month, as determined by the employer.
  • No deductions may be taken from any amounts paid to employees as mileage reimbursements.
  • At the time of payment, the employer must provide an itemized statement in writing, explaining the computation of the mileage reimbursement.
  • Employers must keep daily mileage records and maintain these records for at least three years.

For more information on IRS mileage reimbursement rates: http://www.irs.gov/Tax-Professionals/Standard-Mileage-Rates.