Here’s a riddle for you: If employees are driving their own cars, what’s your responsibility as an employer to make sure they’re keeping an employee car mileage log?
The short answer is: a great deal, but there’s more to it than that. First, you have a responsibility to your employees. Since they can no longer claim unreimbursed mileage on their taxes, the only way they can be compensated for the use of their vehicles for work is through their employer. Secondly, you also have a responsibility to your business. Mileage reimbursement is tax-deductible, meaning it isn’t taxed like employee wages are, so it benefits your bottom line to implement a system for reporting and reimbursing these expenses.
In order to properly reimburse mileage, you either need to track every single car expense or make sure each individual keeps an IRS-compliant employee car mileage log. These logs substantiate the business use of a vehicle to the IRS, allowing the company to write off reimbursements as business expenses and preventing employees from being forced to pay taxes on these payments.
Why Keep an Employee Car Mileage Log
If you want to provide a tax-free reimbursement, you have to record employees’ business mileage one way or another, and keeping a mileage log is the much easier option. However, even if you aren’t tracking mileage for the purposes of reimbursement, there are many additional advantages to tracking it.
If you’ve opted to pay employees a car allowance every month for instance, substantiating business mileage ensures it stays tax free. If you have a fleet of company-owned vehicles, an employee car mileage log is still necessary to prove it’s being used for business purposes. If employees purchase gas with either a personal or business credit or fuel card, a mileage log substantiates these expenses, as well.
Essentially, if driving is a regular part of your employees’ workdays, you should be tracking their mileage regardless of the nature of your operations. Whether it’s your car or their car, and whether you use the standard mileage reimbursement rate, a car allowance or actual car expenses, you need a means of accurately tracking mileage.
The IRS has its own rules concerning how businesses should keep an employee car mileage log, at least if you want it to substantiate mileage expenses. When it comes to offsetting employees’ business-related expenses, the IRS distinguishes between accountable plans (tax-free reimbursement) and non-accountable plans (taxable compensation).
The rules of an IRS accountable plan:
- Employee expenses are business-related.
- Employee expenses are adequately accounted to their employer in a reasonable and timely fashion (usually within 90 days).
- Any excess reimbursement must be returned to the employer within a reasonable amount of time (usually within 90 days).
In order to meet the requirements for an IRS accountable plan, you must prove that all payments to an employee constitute a reimbursement for business expenses and are not compensation. To do this, you have to show that payments don’t exceed the business expenses incurred by employees while operating a vehicle; a mileage log is the most reliable way to do that.
How to Keep a Mileage Log
As a business, you need a mileage log that is accurate and complies with IRS rules. Here are a few things to keep in mind:
- The IRS requires that mileage be recorded within a reasonable amount of time. It’s a good rule of thumb to have employees contemporaneously record their mileage at the start and end of each trip.
- The IRS requires that the business purpose of every expense be recorded. In the case of mileage logs, employees must state the reason for each trip.
- The IRS mandates that each business expense include information on the date and time it occurred. For an employee car mileage log, the date and time should be recorded for each business trip.
- The IRS designates the employer as the custodian of record. While it’s employees who will record their mileage, it’s up to you as their employer to save and maintain this information. In case of an audit, you should keep your records for at least three years.
So, to recap, an employee car mileage log needs to include: the purpose for each trip, the starting point and the destination of each trip, the mileage at the beginning and end of each trip, the date of each trip, and the starting and ending time of each trip. The mileage log itself needs to be well organized, and employers – not employees – should be responsible for saving these records for several years after the fact.
While the IRS has a lot of rules about recording information about employee expenses, there is no one single way to keep a mileage log. A mileage log is essentially any tool that can store data such as trip date, business purpose, origin, destination and miles driven. As the American workforce has grown more mobile and technology has advanced, mileage logs have taken many forms including paper forms, spreadsheets, expense systems and GPS-enabled apps.
Find the Best Solution
The responsibility employers have for ensuring employees keep a mileage log is significant, but it doesn’t need to be overwhelming. You only need to find the best solution for your company that will help you accurately report expenses, effectively manage reimbursements and maintain consistent records. All the methods for keeping an employee car mileage log mentioned above are still in use today, and all have their issues. That’s why we created SureMileage, to finally solve the administrative headache that is employee mileage reimbursement.
Rather than relying on the total miles driven, SureMileage by CompanyMileage calculates the exact mileage to be reimbursed from point A to point B. Employees simply report their starting and ending points, and the system calculates the driving distance between them. Automated mileage tracking prevents reporting inconsistencies, and point-to-point reimbursement eliminates IRS-disallowed travel such as side trips from the reimbursement equation.
SureMileage ensures businesses have an organized, secure system for managing reimbursements and employees have an easy, accurate way to log mileage. In many cases, it only takes a few minutes each day for each worker. CompanyMileage helps employers save big – as much as 20-30% – on their mileage reimbursement expenses. So, if you keep an employee car mileage log – and you should – do it the right way. Request a demo with us today to learn just how much easier mileage tracking and reimbursement can be!