Why the Current Mileage Rate Matters for Employee Reimbursements
If your team uses personal vehicles for work, understanding the current mileage rate is essential for creating a fair, compliant reimbursement policy. The IRS mileage rate determines how much you can reimburse employees per mile driven for business purposes without making those payments taxable. In other words, it helps strike the perfect balance between employee compensation and employer compliance.
In 2025, businesses will continue to rely on this IRS-issued rate to calculate mileage reimbursements for sales teams, field service technicians, delivery staff, and anyone using their own car for work-related travel. Failing to align with the current mileage rate can result in payroll tax complications, under-reimbursement issues, or unnecessary employee dissatisfaction.
What Is the IRS Current Mileage Rate for 2025?
The official IRS mileage rates are typically released in December for the following calendar year. For 2025, early projections are as follows:
- 67 cents per mile for business use (reimbursable to employees)
- 21 cents per mile for medical or moving expenses (military only)
- 14 cents per mile for charitable use
The business mileage rate is the one that directly affects employee reimbursements. It’s the maximum amount an employer can pay employees per mile without those payments being considered taxable wages.
How IRS Mileage Reimbursements Work
Under the IRS guidelines, mileage reimbursements fall under what’s called an accountable plan. As long as you reimburse employees at or below the IRS rate and they document their mileage properly, the reimbursement is not taxable.
Requirements of an Accountable Plan:
- Business Purpose: The travel must be directly work-related.
- Documentation: The employee must submit mileage logs showing date, purpose, and miles driven.
- Timely Reporting: Employees must report expenses within a reasonable timeframe (usually 30–60 days).
- Repayment of Excess: If you reimburse more than the IRS rate, employees must repay the excess—or it becomes taxable.
Sticking to the current mileage rate keeps you compliant with IRS rules and avoids unnecessary payroll tax filings.
What Types of Travel Qualify for Reimbursement?
Employers can reimburse employees for miles driven for business purposes, such as:
- Visiting clients
- Driving to offsite meetings or training
- Picking up equipment or supplies
- Traveling between office locations
- Conducting sales calls or site inspections
Non-reimbursable mileage includes:
- Commuting from home to a regular office
- Personal errands during the workday
- Detours unrelated to business activity
It’s important to educate employees on what does and doesn’t qualify to prevent over-reporting or compliance issues.
How to Calculate Reimbursement with the Current Mileage Rate
Calculating mileage reimbursements using the IRS standard is straightforward:
- Total business miles driven
- × Current IRS business mileage rate
- = Tax-free reimbursement
Example:
An employee drives 400 miles for business purposes in a month.
400 × $0.67 = $268 reimbursed tax-free
This amount is not subject to income tax, Social Security, or Medicare withholding—making it a cost-efficient form of compensation for both the employee and the employer.
Manual vs. Automated Mileage Tracking
Manual Tracking
- Employees record trips in logbooks or spreadsheets
- Must include date, purpose, start/end points, and miles
- Cost-effective but time-consuming and error-prone
Automated Tracking Tools
Modern mileage tracking apps can detect when an employee starts and stops driving, and automatically log the trip.
Top apps for mileage tracking include:
- MileIQ for Teams
- Everlance for Business
- TripLog
- Zoho Expense with GPS add-on
Automated systems offer:
- Better accuracy
- IRS-compliant reports
- Easier approvals for managers
- Less admin burden for HR or payroll teams
Should Employers Reimburse at a Rate Lower Than the Current IRS Rate?
Yes, employers can choose to reimburse at a lower rate than the IRS standard. However, there are trade-offs:
Pros:
- Cost savings for the business
- Still non-taxable if reimbursed under an accountable plan
Cons:
- Employees may feel undercompensated
- Can create morale or retention issues for roles that require heavy driving
- In most states, employees cannot deduct the difference on their federal return
If you reimburse at a reduced rate (e.g., 60¢ instead of 67¢), be transparent with your team and explain the rationale. Some employers offer flexibility, like covering additional costs for fuel or tolls separately.
What If You Reimburse Above the IRS Rate?
Reimbursing employees above the current mileage rate is allowed—but the excess becomes taxable compensation.
Consequences of over-reimbursement:
- The excess must be reported on the employee’s W-2
- Subject to income tax withholding and payroll taxes
- Creates more paperwork for HR and finance teams
To keep things simple, most employers stick to the IRS standard or stay slightly under it.
What About Mid-Year IRS Mileage Rate Changes?
In some years, the IRS issues a mid-year update to the mileage rate—often due to fuel price surges. When this happens, employers must:
- Split mileage logs by date: Use one rate before the change, and another after
- Update payroll or reimbursement systems accordingly
- Inform employees and adjust reimbursement forms
Failure to do this correctly could result in miscalculated reimbursements or non-compliance during audits.
Are Employers Required by Law to Reimburse Mileage?
At the federal level, no—employers are not required to reimburse mileage. However, some states do require reimbursement for all necessary work expenses, including mileage.
For example:
- California requires employers to fully reimburse employees for business-related vehicle use
- Illinois and Massachusetts have similar laws
If you’re in a state with reimbursement mandates, failing to comply can expose your business to lawsuits and labor penalties.
Conclusion
The current mileage rate provides a clear, IRS-approved guideline for reimbursing employees who use their own vehicles for work. By adopting an accountable plan, using the current rate, and implementing solid tracking systems, employers can support their teams fairly while staying tax-compliant.
In a time when vehicle costs are rising, providing tax-free mileage reimbursement based on the latest rate is not only smart—it’s essential for employee satisfaction and financial accuracy. Make sure your policies are updated for 2025 and your staff is equipped to track their miles effectively.
