Commuting Mileage Reimbursement: Stop Paying Employees for Driving to Work
Andjelka Prvulovic
Last update on:
September 4, 2023 1:53 AM
Published on:
Do you know if you can reimburse your employees for their commuting miles? If you’re not sure, you’re not alone. Many employers and employees struggle with understanding and applying the IRS mileage reimbursement rules for commute.
Commuting miles are the trips from the employee’s home to their place of work and vice versa. According to the IRS, these miles are not deductible and cannot be reimbursed by employers. However, there are some not-so-clear-cut cases you should be aware of.
Today we'll explain everything you need to know about commuting mileage reimbursement. We’ll cover the difference between business miles and commuting miles, the IRS rules and regulations, and some most common scenarios. We’ll also show you how Timeero can help you manage your employees’ business miles easily and accurately.
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The commute miles are the distance employees travel from their residence to their primary workplace and back.
According to the IRS mileage reimbursement rules, commute doesn't fall under the hours worked category and is considered personal travel.
And the trip will still count as commuting even if you do work-related tasks during the travel, like reviewing business documents or answering business calls.
IRS Mileage Reimbursement Rules for Commute
Under the IRS, a commute is “the cost of transportation between your home and your main or regular place of work.”
But what is the IRS rule for commuting miles?
The IRS does not allow employers to deduct commuting mileage as a business expense. Companies that compensate their staff for commuting to work must report it as taxable income to the employees and withhold the appropriate taxes.
However, some situations may seem confusing. They may resemble commuting at first glance, but they are actually business travel.
These include:
A worker has a second job and travels there directly from their main job without a break,
An employee travels to a temporary work location, which differs from their primary workplace, directly from their home.
If an employee has a qualifying home office that meets the IRS criteria of being their main place of business, they may be eligible to deduct travel expenses between their home office and other work locations from their taxes. But keep in mind that these criteria are stringent.
PRO TIP: Some travel expenses can be claimed for deduction by employees on their personal tax returns. For example, travel from one job to another or from home to a temporary work site. If employers pay for these expenses, they must tax the payments and report them on W-2 forms. But employers can also deduct the payments on their taxes. The mileage itself is not deductible for employers. For specific details and requirements, it’s always best to consult a tax professional or consult the relevant tax authority.
What Are Business Miles?
Business miles are trips from one work location to another during work hours or for business purposes.
And while according to the IRS mileage reimbursement rules, commute miles are not deductible - business miles are.
So, a clear distinction between commute vs. business miles is one of the key factors for accurate and adequate mileage reimbursement.
Employers and business owners need a way to track and classify their employees’ mileage accurately to avoid overpaying or underpaying them and facing potential tax penalties or audits.
Some of the best mileage-tracking apps can help them do that easily and efficiently. Let’s take Timeero as an example.
The mileage tracker lets you see your employees’ locations and routes during their shifts and tracks their business trips with a single click.
After an employee hits the clock-in button, Timeero will ask them to confirm their location.
The Timeero mobile app captures mileage automatically while employees are on the clock.
The app will only record miles while the employees are on the clock. You will see the exact spot your employee first logged in, with a timestamp, their entire route, and where they clocked out of their shift.
See details of your employees' routes.
Besides capturing employees’ trips during their working hours only, Timeero lets’ you set specific mileage rules to help you ensure only business mileage is captured and reimbursed.
For example, the commuter mileage feature lets you specify the commuting distance for each employee. With such settings, the app will only track mileage after an employee travels more than a predefined number of miles.
This way, the software gives you more control over mileage and business expenses. You can ensure no private miles are being reimbursed and the company is no longer paying for commute costs and scenic routes.
Still, keep in mind that reimbursement can sometimes cover the expenses for different types of transportation, like ride-sharing services, trains, or buses.
If this is the case, the IRS may deduct taxes based on the actual expenses of an employee rather than the amount they would spend on gas.
We can use an easy example to clearly distinguish between business and commute miles and further clarify the IRS mileage reimbursement rules for a commute.
Let's say Melanie, who works in your company, lives three miles away from your main office. She drives to and from your office every day. She meets a client on Tuesdays at their premises, five miles from the office.
On a regular day, Melanie drives four miles to her office and the same distance to return home, so her mileage from home is eight miles in total.
On Tuesdays, she'll have an additional ten miles driven, so eighteen miles in total: four miles to the office, five miles to meet the client, five miles back to the office, and then four miles back home.
Following the IRS mileage reimbursement rules for commute, Melanie's drive to the office and back home is considered personal commuting mileage. If you want to reimburse Mellanie for her eight miles long commute each day, you can offer it as an extra perk. Still, you won’t be able to deduct taxes for these expenses.
However, as Melanie has to leave her primary business location to complete her business-related tasks, those ten miles she drives per a Tuesday’s meeting qualify as business miles. When reimbursed, costs for these number of miles are tax-deductible.
How to Calculate a Commuting Disallowance?
You can deduct commute from the total mileage of the day by subtracting the miles of your employees’ commute from the gross daily mileage.
After the mileage deduction, what you have left is net mileage, which you can reimburse using the standard mileage rate.
For example, if an employee drives 34 miles daily, their gross mileage. Their commute, both ways, is 12 miles. When you subtract 12 miles (commute) from 34 miles (gross mileage), what you have left is 22 miles (net mileage) to reimburse.
In general, you can calculate commute disallowance using the following formula:
Commuting Disallowance = Daily Commute Miles X Travel Days.
Should I Provide Commuting Mileage Reimbursement?
Reimbursing employees’ commuting mileage is not a common business practice. Besides not being required by the law, such a scheme could be costly for your company.
On the other hand, reimbursing business mileage is considered a good business practice, although not mandated by federal law.
In most states, mileage reimbursement is a common benefit that helps companies hire and keep their employees. However, companies offering this benefit to their employees usually have a Commute Disallowance Policy and don’t cover personal trips. Those that do offer a commute benefit to their staff typically don’t cover the entire sum but a smaller portion.
But, in some states, laws are much stricter. If you run a company in California, Massachusetts, or Illinois, you must reimburse your employees for the costs of using their private vehicles for business purposes. If you omit to do so, you are breaking the law and can face severe consequences. However, the law doesn’t apply to commuting mileage reimbursement.
Another thing to keep in mind is the federal minimum wage. The Fair Labor Standards Act (FLSA) does not require you to reimburse commuting expenses but requires paying your employees at least the minimum wage. If your employees’ work-related expenses reduce their wages below the minimum wage, you must reimburse them enough to make up the difference. Otherwise, you could be sued and fined by the government.
If you offer your employees a commuting mileage reimbursement benefit, ensure you tax it correctly. Commuting expenses are considered taxable income by the IRS, unlike business expenses. You must report them on your employees’ W-2 forms and withhold the appropriate taxes.
How Can I Manage Commuting Mileage Reimbursement?
The most efficient way to tackle commuting is by making commuting disallowance a part of your general mileage reimbursement policy.
There are two crucial steps towards achieving this goal - establishing the policy and choosing a reliable mileage tracking method to support it.
Step 1. Establish the Mileage Reimbursement Policy
Your mileage reimbursement policy must be clear and well-structured to answer all the employees' questions regarding the compensation process. For more details on how to create it, check out our article on drafting mileage reimbursement policy, or download the free template we’ve prepared for you to tailor to your company’s needs.
When it comes to commuting disallowance, the policy must specify that commute miles between residence and primary work location are considered personal miles and do not qualify for compensation.
The policy must also clarify the not-so-clear-cut cases.
For example, an employee works in a temporary job location different from their primary place of work. In that case, you can explain that the company will reimburse them for mileage in excess of the normal commute.
Or, if an employee has more than one usual work location, you can explain that your company will cover the mileage traveled between them in the same workday.
Step 2. Choose a Reliable Mileage Tracking Solution
The method of tracking employee mileage for business use can significantly impact the effectiveness of your mileage reimbursement policy. It can be detrimental to whether you’ll pay your employees fairly, reduce your company’s expenses, and avoid legal problems and penalties. To learn more about the pros and cons of each method, read our Mileage Tracking 101 Guide.
Choosing the right mileage tracking software can give you the control you need over the miles your company reimburses and help you manage your employees’ commute. To learn more about what to look for in a mileage tracker, check out our article on the essential features.
How Can Timeero Help Reimburse My Employees’ Mileage Accurately?
Timeero can help you simplify and streamline the entire mileage reimbursement process - from keeping track of the business miles to calculating the expenses you need to reimburse and the payroll.
As Timeero provides accurate and relevant data and enables easy access to the employees' miles, the reimbursement process becomes transparent, helping you avoid potential disputes. So, in the case of the IRS audit, with such a solution, you can rest assured all your records are clean and valid.
So, what can you expect from Timeero in regard to mileage tracking and reimbursement?
Save tons of your employees’ time by completely ditching manual tracking methods, such as paper mileage logs and spreadsheets - all data is gathered via a single click of the finger.
Export mileage expenses for reimbursement using Timeero integrations with common payroll and accounting software, such as ADP, QuickBooks Online and Desktop, Xero, Gusto, Rippling, Rippling, Paychex, Paylocity, Viventium, etc.
Timeero mobile app lets employees track their miles easily. As the app recognizes the driving speed, the business mileage is recorded automatically during working hours. You can see the routes of your employees in real-time using the Who’s Working dashboard and access them retroactively using the route replay mode.
Timeero Route Replay
By opting for the Segmented Tracking feature, you can get a detailed breakdown of all your employees’ activities during their shifts. All they have to do is clock in and out once during their working hours, and the app will segment their activities into business travel and job or location visited, and include all the necessary details.
Timeero Segmented Mileage
The mileage logs and records are created automatically and contain all the details the IRS demands.
Timeero provides IRS-compliant mileage logs and records.
As they are created automatically, mileage logs are immune to fraud and human mistakes. If there are any changes to mileage log entries, the system will keep track of them in History Log, improving accountability.
Timeero records all edits in the Activity History.
Timeero comes with the commuter mileage feature to help you manage these expenses efficiently.
The app will not only track the employees' mileage, but it can also suggest to your employees the shortest route to their destination, allowing your company even more savings.
Your employees can see the shortest route to their destination.
The suggested mileage feature can help you compare the shortest and the actual routes, plus view the mileage savings.
Timeero Suggested Mileage
To ensure your employees don’t forget to keep track of their business miles, you can set up Timeero to send clock-in or out reminders when their shift is about to begin or end, or once they’ve entered or left the geofenced area.
And, if someone forgets to clock out and the app keeps logging the private miles, you can easily recalculate the business mileage.
The software allows you to recalculate mileage.
With Timeero, you can reimburse your employees for their business miles fairly, ensure compliance, and save your company money. All this at an affordable price.
To learn more about its other useful features, such as time and location tracking, scheduling, etc., read our comprehensive Timeero Review.
Or, just sign up for a free trial and enjoy all the benefits now, with no obligations.
FAQ: IRS Mileage Reimbursement Rules for Commute
Is commuting mileage tax deductible?
As essentially a personal trip, commuting mileage costs do not qualify for a tax deduction.
What is the IRS commuting rule for 2023?
Following the IRS, employees’ commuting expenses when traveling between their homes and regular workplaces should be treated as personal expenses. Consequently, these expenses are not eligible for tax deductions.
How many miles is considered commuting?
The IRS does not provide a specific mileage requirement to define the commute. The distance covered during the commute can vary, as it is determined by the unique circumstances of each employee.
Timeero lets you gain control over your employees’ miles.
Andjelka is a sociologist turned digital marketer. She specializes in creating content for SaaS and software companies. When she’s not researching the most effective employee management techniques, Andjelka loves cooking, reading, and fighting for human rights.
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