Employers can reimburse personally paid expenses for travel at actual cost or at the standard mileage rate of 57.5 cents per mile for 2020. This can be a deduction for the employer and tax-free income for the employee, but you must follow some simple, but strictly enforced, rules. If you do not follow these rules, you may turn employee reimbursements into taxable wages that are subject to employment taxes, so pay attention to the rules below!

First, you must have an accountable plan in place. This accountable plan does not have to be written, but you must follow the rules set forth by the IRS. These rules require employees to provide timely proof of the amount and business purpose of the expenses that they have incurred. The employer should be receiving either receipts for the actual expenses that an employee incurs or a detailed mileage log that shows all personal and business trips that the employee takes with starting and ending odometer readings. The mileage log is required for all mileage reimbursements and the person receiving the reimbursement must be keeping the log as the expenses are incurred. Mileage logs created weeks after the trip will not hold up against the IRS and can cost you your deductions!

Click here for a sample Accountable Plan for you to keep on record. If you need a mileage log for 2021, please stop in our office for a paper log or look at setting up a mileage tracking app on the employee’s phone or tablet. MileIQ is one example of a simple mileage tracking app. Remember that if you are an S-Corp owner, you are also bound by the employee reimbursement rules! Do not miss out on reimbursing yourself for travel costs using this accountable plan.