Non Taxable Mileage
August 21st, 2010Question: As the owner of a company I reimburse employees for fuel on a daily basis, can I claim this as non taxable?
My employees do not fill out mileage logs, I do not want to tax them on their per diem gas reimbursement since they pay tax at the gas pump. Is there a way to do this without having them fill out a gas/mileage log?
Answer: Unless you are running an accountable expense reimbursement plan, any reimbursements you make to your employees MUST be included in their gross wages on their Form W-2. It's then up to them to claim the expenses using Form 2106 and taking an itemized deduction for any out of pocket expense. (For most employees this will mean that they won't get any deduction since the majority of taxpayers don't have enough expenses to itemize in the first place.)
If you are running an accountable plan you are restricted to reimbursements for allowable business expenses and the reimbursements must be fully documented. That includes mileage logs for their personal vehicles, and you may only reimburse them for business miles driven, not commuting. You should base your reimbursement on the number of miles driven, not a reimbursement for fuel. Your record keeping requirements will be somewhat reduced if you use the Federal reimbursement rate, currently 55¢ per mile.
In order for them to take a deduction for the use of their vehicle, they're going to have to keep mileage logs anyway so you might as well make it easy on them and reimburse the Federal rate and require them to turn in the logs monthly. That way you don't add the money to their W-2s, their tax prep job is much simpler, and if they don't keep proper records, they get no reimbursement from you.
Not sure what you mean by "they pay tax at the gas pump" since the fuel taxes have nothing to do with income taxes.
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