I’ve gotten a couple of questions recently about the 2019 IRS Mileage reimbursement rates and how employers can implement mileage reimbursement to be in compliance. Here’s a brief overview.
Standard IRS Mileage Reimbursement
The IRS typically announces the new year’s mileage reimbursement rates in mid-December. For 2019, the standard mileage reimbursement rate is .58/mile. If you are in California, you probably already know that all business-related expenses need to be reimbursed. Mileage reimbursement is one of those areas that should be clear cut but there are plenty of opportunities to make mistakes. Knowing your options will help you make good decisions for your business.
Mileage must be reimbursed when an employee is driving for business-related reasons, outside of an employees typical commute. There are a lot of variables around when you need to pay for commute time and mileage. If you have more than one office, a mobile workforce, a variable worksite, etc., you may be at risk.
What is commute time?
One area that can be very confusing is if you have 2 offices that are reasonably close together. It might be logical to assume that both offices are within the “commute time” radius. But what if you have an employee who works in the morning at one office and then drives to the other office after lunch? Believe it or not, driving to the other office requires mileage reimbursement and travel time. California considers the drive from home to the first office as commute time. The drive home from the second office is also commute time. The drive from office 1 to office 2, however, is not commute time. This area of compliance is an easy one to miss.
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Employees who work at a “worksite”
I get a lot of questions about employees who work at a worksite or visit clients. Essentially, driving from home to the first stop, regardless of what that stop is, is work time. Additional distances after that are work time.
For example, employees have to come to an office, yard, pick up materials at a hardware store, etc., then that is the start of their work day. Then they drive to a client’s home, worksite, etc., and that mileage reimbursement must be made.
Other mileage reimbursement options:
While paying mileage is the most common way to reimburse employees who drive on behalf of the business, there are 2 other options as well.
Flat Rate Car Allowance
Some employers opt to pay employees a flat rate car allowance. Most often this is a monthly allowance. This allowance reimburses employees for the fuel, wear and tear, insurance, etc. for their automobile.
This option appears attractive because of the ease of administering the program. If employees are driving their own car, they get the allowance.
However, you need to make sure you are covering at least the IRS mileage reimbursement rates for the miles your employees are driving. If you decide to go this route, you may find it beneficial to schedule an annual review and ensure that the dollar amount is sufficient.
And, keep in mind, with a flat rate, you are paying additional FICA taxes. And, the money is taxed for your employees as well.
FAVR Programs
With Fixed and Variable Rate (FAVR) Reimbursement Programs employees are reimbursed for fixed costs (such as insurance, taxes and registration fees) and variable vehicle expenses (such as fuel and maintenance).
One advantage of the FAVR is that reimbursements are tax-free to employees if certain expense-accounting requirements are met. For 2019,
IRS Notice 2019-02 includes that computing allowances under a FAVR plan, standard automobile costs may not exceed $50,400 for automobiles, trucks and vans.
FAVR is considered to be the gold standard of reimbursement but it is also the highest in administration. With the continued development of technology including mileage tracking, fleet management systems, etc., FAVR may end up being a more popular choice in the future.
Now what?
Now you can evaluate your options and decide which one works best for you and your business. Take some time to analyze when and where your employees are driving today. Then, look at the mileage reimbursement options and decide which one will be the most effective for you to implement.