The COVID-19 pandemic isn’t over, but companies across the country are figuring out how to get back to normal. We won’t be returning to the status quo, though. In 2020, working from home became mainstream, and as it turns out, we all really liked it. Working from home, at least some days of the week, is likely a trend most companies will continue. Whether you’ve decided to permanently shutter your central office location, or develop a hybrid working model, the question remains: how will you administer your employee mileage reimbursement policy?
Perhaps you haven’t given this matter serious consideration, especially if you already have an existing policy. That’s sufficient, right? Well, as working arrangements evolve and hopefully settle into a new normal, will a pre-pandemic employee mileage reimbursement policy still be applicable moving forward? Now is the time to review and update your expense policies to ensure that they align with the IRS’ tax guidance and clearly explain what can and can’t be reimbursed.
Clarifying the Commute
The IRS defines your commute as “transportation between your home and your main or regular place of work”. Typically, a commute is not considered allowable business travel and so is not tax deductible if you reimburse your employees for the travel. Even before the pandemic shook up the idea of a “commute”, it was still difficult to determine when and when not to reimburse employee travel from their homes. For instance,
- Trips between home and a regular or main job are never deductible
- Trips between home and a temporary work location are deductible if an employee’s main job is at another location
- Trips between home and a second job are never deductible on a day off from an employee’s main job
- Having a deductible home office makes many “commutes” into allowable business trips
If employees work at several different locations or in an assigned geographic area, defining what is and isn’t a “commute” is trickier than you may at first realize. When you sit down to update your employee mileage reimbursement policy, look carefully at how define allowable business miles and if it’s sufficient. It may require more explanation in order for employees to understand what trips they should and shouldn’t submit reimbursement requests for. Here are a few rules of thumb to keep in mind:
- Working during a commute does not make it deductible
- Traveling between home and a temporary work location is typically deductible
- If an employee has a qualifying home office, then traveling to the office or other regular place of business is deductible
Determining the “Workplace”
According to the IRS, in order to have a qualifying home office, employees must:
- Use a specific area of their home exclusively for trade or business. (If the area is used for business and personal use, it won’t count.)
- Use a specific area of their home for business on a regular basis. (Incidental or occasional business use is not regular use.)
- Use their home as their principal place of business for that trade or business. (Employees can have more than one business location, but a significant portion of work must be performed at their home in order to qualify.)
If employees meet with clients or patients at their homes, then it would qualify. If employees have a home office simply because it’s convenient or helpful, that’s not enough to make it deductible. In a hybrid WFH model, most employees’ home offices probably won’t meet the IRS requirements, so travel from their home to an office or other work location will probably remain taxable. Some employees may have qualifying home offices, though, and you should keep this in mind as you work out your employee mileage reimbursement policy guidelines.
Ironing Out the Details of an Employee Mileage Reimbursement Policy
It’s very common for expense policies to be light on detail. This is to allow for flexibility, but it also means that in many cases, employees are left confused about what counts as allowable business travel and what doesn’t. This confusion leads to many instances of employees misreporting business mileage which requires managers to spend more hours reviewing and approving reimbursement requests.
With so many businesses adopting a brand new hybrid WFH model, we have the opportunity to start fresh with a policy that aligns mileage reimbursements with tax rules and employee behaviors. Often, it’s up to the employee to decide how a trip is categorized, and their manager is left to approve that decision. A clearer employee mileage reimbursement policy ensures that the person submitting an expense report knows the proper guidelines and that their manager understands the tax rules behind what they are reviewing.
Work Anywhere With CompanyMileage
While you’re in the midst of making changes to your organizational structure and employee mileage reimbursement policy, now is the best time to update the technologies your business uses to manage employee travel, too.
CompanyMileage has revolutionized mileage and expense tracking with their solutions, SureMileage, SureMobile and SureExpense. It only takes a few minutes everyday for any employee to accurately manage their trip mileage, submit expense reports and have their reimbursement approved. Automatic workflows relieve common bottlenecks of the reimbursement process, and our ability to integrate our solutions with any payroll or accounting platform means reimbursements are issued in a timely manner.
Because CompanyMileage only charges you when your employees use our system, we are a very affordable and flexible option to streamline expense reimbursement management. If you’re wondering how to go about managing expenses and mileage reimbursements with a hybrid WFH model, request a demo with CompanyMileage today. We’ll help you simplify your policies that much more with a mileage reimbursement solution that employees actually like to use.