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Thread: Mileage Reimbursement

  1. #1

    Default Mileage Reimbursement - Is it taxed? Is 50 cents the max?

    Hello Everyone !!

    When paying employees mileage does it have to be at the IRS amount of 50 cents/mile or less. Can it be more?

    Is it possible to pay staff a fixed amount, for example $200/month and not worry about miles? Or any other $ figure negotiated by employee or for any other reason.

    Is mileage taxed?

    Thanks for your help !!
    Last edited by Grindstone1; 03-12-2010 at 06:45 PM.

  2. #2
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    Steve B's Avatar

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    You can pay whatever you want for mileage. The IRS rate only applies to how much of the expense is used for your tax calculations.
    Steve B

  3. #3

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    Thanks Steve!

    Can you please explain what you mean by:

    "The IRS rate only applies to how much of the expense is used for your tax calculations"?

    Does that mean that anything beyond 50 cents a mile is taxed?
    Do staff have to count that extra part as wages? If so does this mean we have to pay employer's tax on top and it is not a regular business expense?
    Is 50 cents a mile tax free?

    Thank you very much for your patience as I'm trying to learn !!!

  4. #4
    Mr. Tax Man
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    If you reimburse under 50 cents a mile, employees may be able to itemize their deductions for unreimbursed business expenses for the difference. Anything in excess of the allowed amount is wages.

    The best bet is just to reimburse at the IRS rate. Everybody tends to be happy that way.
    Small Business CPA
    "A tax loophole is something that benefits the other guy. If it benefits you, it's tax reform."

  5. #5

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    Thanks Evan ! That makes sense.

    Is mileage reimbursement tax free?

  6. #6
    Mr. Tax Man
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    Quote Originally Posted by Grindstone1 View Post
    Is mileage reimbursement tax free?
    Yes.

    The corporation gets the mileage expense. The employee gets money, which isn't wages -- merely reimbursement. Reimbursements shouldn't be run through payroll at all.
    Small Business CPA
    "A tax loophole is something that benefits the other guy. If it benefits you, it's tax reform."

  7. #7

    Default Mileage Reimbursement

    For those individuals who plan to claim mileage for medical or moving related travel, they should be aware that the new rate for 2010 is just 16.5 cents per mile, down from 24 cents per mile in 2009, 7.5 cents per mile less. This change is significant to me personally because my spouse and I elect to defer money into a Flexible Spending Account (FSA)

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    Mr. Tax Man
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    Why is the change significant? FSA's are pre-tax, and accordingly, none of your medical expenses that were paid with the FSA are going to be deductible for income tax purposes.

    HSA's are the same. The benefit is now you don't have to deal with the 7.5% haircut your medical expenses would incur if you deducted it. It's a great benefit.

    Even if you seek reimbursement from the provider, you still get a 100% benefit.
    Small Business CPA
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    Are you sure about this? I thought that one could only be reimbursed the maximum of 50 cents per mile. The employee can choose actual costs over the allowance the IRS gives if they so choose. But the IRS only allows for .50 cents per mile. Anything higher than that is subject to tax. Correct?

    This was taken from the IRS:
    Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
    tulsa accounting agency providing nationwide payroll services and do-it-yourself online payroll

  10. #10
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    Quote Originally Posted by sequoiapayroll View Post
    Are you sure about this? I thought that one could only be reimbursed the maximum of 50 cents per mile. The employee can choose actual costs over the allowance the IRS gives if they so choose. But the IRS only allows for .50 cents per mile. Anything higher than that is subject to tax. Correct?

    This was taken from the IRS:
    Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
    If you have an accountable plan... meaning you turn in receipts, you can be reimbursed for the actual costs, or the standard mileage rate.

    If you want to pay someone $5.00 per mile driven, go ahead -- but it is subject to taxes (yes). Sometimes, people would rather give an allowance of say $300 -- and that is also taxable, and the employee can figure out the details if he is able to itemize his deductions. Otherwise, it's taxable.
    Small Business CPA
    "A tax loophole is something that benefits the other guy. If it benefits you, it's tax reform."

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