How to Calculate Mileage Reimbursement (and How Not to)

Mileage reimbursement seems like such a simple equation: Miles driven multiplied by a predetermined reimbursement rate. While the math seems simple, there are rules that have to be followed and controls to be implemented to make certain the process is equitable and the expense manageable.

The first piece of the equation, the reimbursement rate per mile driven, is set by the company. And while many businesses use the so-called business standard mileage rates set by the Internal Revenue Service, there is no requirement to do so. Many likely follow the IRS rate for competitive reasons, while others may be seeking to maximize their deductible business expenses.

The IRS, not surprisingly, has rules about how to calculate mileage reimbursement and many are covered in Publication 535, Business Expenses and Publication 463, Travel, Entertainment, Gift, and Car Expenses. Among the highlights:
To make nontaxable reimbursements to employees, companies must have what is called an accountable plan in which employees must:

• Have paid or incurred deductible expenses while performing services as an employee
• Adequately account for those expenses within a reasonable period of time
• Return any excess reimbursement or allowance within a reasonable period of time.

What does the IRS consider adequate accounting? Its says, “Your employees must adequately account to you for their travel, meals, and entertainment expenses. They must give you documentary evidence of their travel, mileage, and other employee business expenses. This evidence should include items such as receipts, along with either a statement of expenses, an account book, a dayplanner, or similar record in which the employee entered each expense at or near the time the expense was incurred.” The IRS also asks that employees record the date of each trip, the destination and the business purpose of the trip.

Existing systems are costly and inaccurate

All of that documentation has to be collected from the employee, its accuracy verified, and the math checked before payments can be issued. All of that takes time and money, both of which are in short supply. And still there is no guarantee of accuracy. There has to be a better way, right?

SureMileage, from CompanyMileage, uses a different approach to calculating mileage reimbursement. With it, employees report their starting point and destination and the system calculates the driving distance between them. Rather than verifying the miles that were driven, it calculates the expenses to be reimbursed. Because it is point-to-point reimbursement, personal mileage is eliminated from the reimbursement equation, as are home commutes.
SureMileage has an integrated address book – corporate and personal – and every location is given a name. To add a new location, employees can add it to the app and it will automatically populate. CompanyMileage proactively calculates the travel needed for business purposes and the expense that needs to be reimbursed. Supervisors can review and approve expenses and send them to Accounting for reimbursement.