Kentucky Mileage Reimbursement: Rules, Rates, Best Practices

While there’s no statewide Kentucky mandate forcing private employers to reimburse for mileage, state and public sector guidelines ensure that employees—especially state workers—are compensated fairly.

In Kentucky, mileage reimbursement serves as a means to compensate employees for vehicle expenses incurred during work-related travel. These expenses cover not only fuel costs but also a portion of vehicle wear and tear, maintenance, and depreciation. Although private employers are not legally required to reimburse mileage, doing so is often considered good practice and, in some cases, necessary to ensure employees’ total compensation meets the minimum wage standards.

Private Employers vs. State Employees

Private Employers

Kentucky law does not obligate private employers to offer mileage reimbursement when employees use personal vehicles for business purposes. However, employers often choose to reimburse travel expenses as a gesture of good faith and to avoid potential issues with the Kentucky Minimum Wage Act. [3]

Private employers may adopt the IRS standard mileage rate—set at 70 cents per mile for businesses in 2025—as a benchmark. This rate is intended to cover fuel, maintenance, and other vehicle-related costs. Reimbursements at or below the IRS rate are generally non-taxable; any excess must be reported as taxable income.

However, “Cents per Mile (CPM)” programs often over and underpay employees. For this reason, employers often choose another kind of reimbursement program, usually FAVR or TFCA, which are both tax-compliant in Kentucky.

State Employees

For state employees, mileage reimbursement is governed by specific statutes and administrative regulations. Under Kentucky Revised Statutes (KRS) 64.710 and the administrative regulation 200 KAR 2:006, state employees are reimbursed at rates determined by current fuel costs.[2]

The reimbursement rate for state employees is adjusted quarterly based on the American Automobile Association’s (AAA) Daily Fuel Gauge Report. For example, the rate from January 1 to March 31, 2025, is set at 43 cents per mile. These periodic adjustments help ensure that the rate reflects real-time changes in fuel prices.[3]

Legal Framework and Rate Determination

Governing Statutes and Regulations

KRS 64.710 and 200 KAR 2:006:
These legal frameworks mandate that state employees be reimbursed for necessary travel expenses using a formula tied directly to fuel costs reported by AAA. The regulations ensure transparency and fairness in how mileage rates are calculated and applied.

Adjustment Mechanism:
The reimbursement rate is updated on January 1, April 1, July 1, and October 1. The adjustments are based on the average retail price of regular unleaded gasoline in Kentucky, ensuring that state employees receive a fair rate that mirrors current fuel prices.

Private Sector Considerations

Even though private employers are not bound by these specific state statutes, adopting similar practices can be beneficial. Providing a fair mileage reimbursement rate helps avoid potential wage compliance issues and contributes to overall employee satisfaction.

Tax Implications

When mileage is reimbursed at or below the IRS standard mileage rate, the amount is generally excluded from taxable income. Reimbursements above this rate, however, must be reported as taxable income, which can affect the employee’s tax liability. The exception is FAVR programs, where amounts even over the IRS rate can be paid tax-free.

Read more about tax rules for FAVR programs.

Mileage reimbursements are typically tax-deductible as a business expense, making it a financially prudent practice for employers to offer reimbursement—even when not legally required. This tax benefit can help offset the cost of reimbursing employees. This is a better strategy than, for example, giving a taxable car allowance.

Best Practices for Employers and Employees

Employers

Establish a written mileage reimbursement policy that outlines:

• The applicable rate (whether following the IRS standard or a state-specific rate for public employees).
• Documentation requirements for mileage logs.
• The process for submitting and approving mileage claims.

Regularly review both IRS and Kentucky state guidelines to ensure that your reimbursement practices remain compliant and reflective of current rates.

Keep detailed mileage logs that record the date, purpose, start and end odometer readings, and total miles driven. Accurate records not only support reimbursement claims but are also essential for tax purposes.

For state employees, familiarize yourself with the guidelines provided under KRS 64.710 and 200 KAR 2:006. For private employees, ensure that your mileage reimbursement policy meets the requirements of the Kentucky Minimum Wage Act, especially if you are paid at or near the minimum wage.

Conclusion

Mileage reimbursement in Kentucky is characterized by a dual approach: while private employers have the flexibility to choose their reimbursement rates (often aligning with the IRS standard), state employees benefit from a structured system that ties reimbursement rates directly to current fuel costs. Understanding the legal framework, tax implications, and best practices is essential for ensuring fair compensation and compliance with both state and federal guidelines.

By staying informed and maintaining accurate records, both employers and employees can navigate the complexities of mileage reimbursement in Kentucky, ensuring that travel-related expenses are managed transparently and efficiently.

For further details, consult the official resources and legal texts available through Kentucky’s state agencies and trusted industry publications.

Bibliography

• Labor Law Center. “Mileage Reimbursement in the State of Kentucky (KY).” Labor Law Center.
  https://www.laborlawcenter.com/education-center/kentucky-mileage-reinbursement/?srsltid=AfmBOopGD-a3j2xD6df4OmcMnXUFaWaK7gyyLFTLhzHg5kY-InagLmvB
• Ramp. “Kentucky Mileage Reimbursement Calculator.” Ramp.
  https://ramp.com/mileage-reimbursement-calculator/kentucky
• Kentucky Office of the Controller. “Mileage Rate.” Office of Statewide Accounting Services, Kentucky.
  https://finance.ky.gov/office-of-the-controller/office-of-statewide-accounting-services/Documents/MileageRate.pdf