How Employers Should Handle the 2025 IRS Mileage Rate for Reimbursements

What the 2025 IRS Mileage Rate Means for Employers

If you have employees who use their personal vehicles for business-related tasks, understanding the 2025 IRS mileage rate is critical for managing reimbursements. Each year, the IRS sets a standard mileage rate that employers can use to compensate workers for driving costs without making those payments taxable.

Reimbursing at or below this standard rate ensures that payments to employees are not considered income, avoiding additional tax reporting and payroll complications. For companies that rely on mobile teams, field workers, or decentralized operations, following the IRS guidelines helps control costs and maintain compliance.

What Is the 2025 IRS Mileage Rate?

The IRS updates the standard mileage rate every year based on the cost of fuel, insurance, maintenance, registration, and depreciation. Although the official 2025 figures are expected in December 2024, early projections suggest:

• 67 cents per mile for business travel
  
• 21 cents per mile for medical or moving (military only)
  
• 14 cents per mile for charitable use
  

For employers, the business mileage rate is the most important. It sets the maximum amount you can reimburse employees tax-free for the use of their personal vehicles.

Why Use the IRS Rate for Reimbursements?

1. Keeps Reimbursements Non-Taxable

As long as your reimbursement rate does not exceed the IRS standard, the amount paid to employees is not considered income. That means no additional withholding, no reporting on W-2s, and no added payroll taxes.

2. Simplifies Administration

The IRS mileage rate provides a universally accepted benchmark. You don’t need to calculate actual vehicle expenses for each employee—just track business miles and multiply by the approved rate.

3. Reduces Audit Risk

Using IRS-compliant methods shows you’re following best practices. It also helps protect your business in case of an audit or employee dispute over reimbursement policies.

Setting Up a Mileage Reimbursement Program

To reimburse employees properly, you need a formal, well-documented mileage policy. Here’s how to do it:

Step 1: Define What Counts as Business Travel

Clearly outline which types of trips are eligible for mileage reimbursement. Examples include:

• Traveling to a client site
  
• Driving between company locations
  
• Attending business-related events
  
• Delivering goods or making service calls
  

Commuting from home to a regular office is not reimbursable, as the IRS considers it a personal expense.

Step 2: Adopt an Accountable Plan

An accountable plan is required to ensure reimbursements remain tax-free. To qualify, the plan must:

• Require employees to substantiate mileage (date, distance, purpose)
  
• Set a reasonable time frame for reporting (usually 30–60 days)
  
• Require repayment of excess reimbursement, if any
  

Without an accountable plan, reimbursements become taxable and must be reported as income.

Step 3: Choose a Tracking System

Decide how your company will collect mileage data:

• Manual logs or spreadsheets
  
• Google Forms or internal portals
  
• Mobile apps like MileIQ, TripLog, or Everlance for Teams
  

Apps offer automatic tracking, route validation, and easy export options—especially helpful if you have a mobile workforce.

Calculating Reimbursement Using the 2025 Rate

Reimbursement is simple once mileage is submitted:

1. Review the trip log for accuracy and compliance
   
2. Multiply the total miles by the 2025 IRS mileage rate
   Example: 500 miles × $0.67 = $335 reimbursement
   
3. Approve and process payment through payroll or accounts payable
   

Always keep mileage logs on file for at least 3 years to support the reimbursement in case of tax review.

Should You Reimburse Below the IRS Rate?

Yes, but with caution.

Reimbursing at a lower rate (e.g., 60¢ per mile instead of 67¢) is allowed, but:

• Employees absorb the extra cost unless they itemize deductions (which few can under current tax law)
  
• It may lead to dissatisfaction if employees feel undercompensated for fuel or vehicle wear
  

Offering the full IRS rate is standard practice unless business cost-cutting demands otherwise.

Can You Reimburse Above the IRS Rate?

Yes, but it becomes taxable income.

If you reimburse more than the IRS mileage rate, the excess must be:

• Reported as wages
  
• Subject to income tax withholding
  
• Included on the employee’s W-2
  

For this reason, most employers avoid going over the IRS rate unless covering additional expenses not included in the standard calculation (e.g., tolls, parking, or per diem).

How to Handle Mid-Year Mileage Rate Changes

Sometimes the IRS adjusts the mileage rate mid-year, especially during economic volatility (e.g., rising gas prices). If that happens in 2025:

• Split the year: Apply one rate to miles driven before the change, and another for miles after
  
• Update reimbursement systems to reflect the new rate
  
• Notify employees and update forms to ensure correct reporting
  

This ensures accuracy and compliance with the IRS mileage rules.

Additional Expenses Beyond Mileage

Some expenses are not covered by the standard rate and may be reimbursed separately:

• Tolls and parking fees
  
• Hotel or meal per diems (for overnight travel)
  
• Roadside assistance (if business-related)
  

These should be documented separately and reimbursed under your company’s travel policy.

Integrating Mileage Reimbursements Into Payroll

Most companies pay mileage reimbursements outside of regular wages:

• Create a separate reimbursement line on pay stubs
  
• Process through accounts payable for contractors or 1099 workers
  
• Maintain clear documentation for each payment
  

If you’re using payroll software, most platforms (like Gusto, QuickBooks Payroll, or ADP) offer built-in mileage reimbursement features.

Legal and Tax Considerations

Mileage reimbursement is optional at the federal level, but:

• California and some other states require employers to reimburse all work-related expenses, including mileage
  
• In these states, failure to reimburse can lead to wage claim disputes and penalties
  

Review your state labor laws and consult a tax professional to ensure you’re complying with local requirements.

Conclusion

For employers, the 2025 IRS mileage rate provides a straightforward, compliant way to reimburse employees for using personal vehicles for business. By adopting an accountable plan, using the correct rate, and maintaining detailed mileage records, you can streamline operations and keep both your company and your employees protected.

Whether you’re managing a remote team, a field sales crew, or a single assistant on the road, having a clear reimbursement policy in place ensures fairness, saves money, and keeps your organization aligned with IRS rules.