Driving a personal vehicle for work means incurring deductible travel expenses, making mileage reimbursement an important thing to consider for both employees and employers in Arizona.
This blog will cover the basics of mileage reimbursement, including the IRS standard mileage rate, more state-specific rules and regulations, and alternative reimbursement methods worth considering. We will also explore the best practices employers and drivers should follow for accurate record-keeping, as well as answer FAQs about mileage reimbursement in Arizona.
Federal guidelines and IRS standard mileage rate
The IRS, which is the highest tax body in the United States, sets a yearly standard mileage rate to help calculate tax-free mileage reimbursement for business travel. For 2024, the IRS standard mileage rate is:
- $0.67 cents per mile driven for business use, up 1.5 cents from 2023
- $0.21 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, a decrease of 1 cent from 2023
- $0.14 cents per mile driven in service of charitable organizations; the rate is set by statute and remains unchanged from 2023 [1]
Mileage reimbursement in Arizona
State regulations and reimbursement rates
Arizona doesn’t have specific state laws that make mileage reimbursement for private sector employees mandatory. However, many employers in Arizona choose to align their reimbursement policies with the IRS standard mileage rate to ensure compliance, fairness, and as a means of employee retention. This rate ensures that reimbursements are non-taxable, provided they do not exceed the IRS guidelines.
For state employees, the State of Arizona Accounting Manual (SAAM) outlines travel reimbursement rules and regulations, including mileage reimbursement rates. It’s important for state employees to refer to this manual for the most accurate and updated information. [4]
While Arizona, much like the rest of the United States, does not require specific mileage reimbursement rates for private industry employees who use their personal vehicles for work, the Fair Labor Standards Act (FLSA) does mandate that certain minimums be met.
According to the FLSA, employees’ expenses incurred on the job should not bring their wages below the federal minimum wage, which is presently $7.25. So, if an employee in Phoenix, for example, incurs enough job-related costs to diminish their hourly earnings to below the federal minimum wage, then under FLSA, the employer is responsible to reimburse to at least recoup the difference. [5]
Alternative reimbursement methods
While the IRS standard rate is popular, there are alternative methods for mileage reimbursement that employers in Arizona might want to consider:
Fixed and Variable Rate (FAVR)
Fixed and variable rate (FAVR) is a tax-free vehicle reimbursement program that combines both fixed and variable elements of reimbursement. Some of these elements include license and title fees, depreciation, gas, insurance, and more. This system offers the most equitable reimbursement for employees, and can be the least administratively cumbersome when paired with a vendor who runs the FAVR program for you externally. [2]
The elements covered by FAVR for personal vehicle use, include:
- Depreciation
- Insurance
- Gasoline
- Oil
- Maintenance and Repairs
- Tires
- Registration and Fee
Cents per Mile (CPM)
CPM is a basic program that reimburses employees based on the number of miles driven, similar to the IRS standard mileage rate, but can be customized by the employer at his or her discretion. Unfortunately, it typically overpays high-mileage drivers and underpays lower mileage drivers, so it isn’t the most equitable. This method is straightforward, but should align with federal and state guidelines to ensure non-taxable status for optimal reimbursements.
463/TFCA
A tax-free car allowance (TFCA), or 463 Accountable Allowance, is an IRS-compliant method of reimbursement that allows businesses to offer a predetermined reimbursement to their drivers with the potential to be 100% tax-free. [2] [3] The only rule to determine taxability is that you must test the value of the Accountable Allowance against the IRS standard rate. The delta is taxable.
Best practices for employers
Accurate record-keeping
Maintaining detailed records is essential for accurate mileage reimbursement in Arizona. A proper mileage record should include:
- The date and business purpose of each trip
- Starting and ending odometer readings
- The number of miles driven
- Locations visited.
These records help ensure compliance and accurate reimbursement, especially if/when audited by the IRS.
Clear communication and policies
Employers should clearly communicate their reimbursement policies to employees. This includes how to track mileage, submit expense reports, what compliance is and how to maintain it, as well as how to understand the components of the reimbursement process. Providing training and resources can help employees comply with company policies and receive the reimbursement they deserve.
FAQs on mileage reimbursement in Arizona
Is mileage reimbursement taxable in Arizona?
No, mileage reimbursement up to the IRS standard mileage rate is non-taxable. Amounts exceeding this rate must be reported as taxable income, unless they are issued under a FAVR plan.
Can tolls and parking fees be reimbursed?
Yes, tolls and parking fees collected during business travel are reimbursable expenses and should be included in expense reports, but not parking tickets or fines.
How should self-employed individuals or independent contractors track their mileage?
Self-employed individuals and independent contractors should maintain a detailed mileage log, including dates, purposes of trips, and miles driven, to support their tax deductions.
What happens if the reimbursement rate exceeds the IRS standard mileage rate?
Any reimbursement exceeding the IRS standard mileage rate must be reported as taxable income unless using a FAVR program.
How does the Fair Labor Standards Act (FLSA) affect mileage reimbursement?
The FLSA mandates that expenses incurred while driving for work should not reduce an individual’s wages below the federal minimum wage, which in 2024 is $7.25. If travel expenses cause an employee’s earnings to fall below the minimum wage, the employer must reimburse the difference. [6]
Conclusion
Understanding mileage reimbursement laws in Arizona is necessary for both employees and employers. By adhering to one of the IRS-approved methods for reimbursement, such as FAVR, 463, or the IRS standard rate, both parties can ensure fair compensation for business travel and maximize tax benefits.
For those looking for a more efficient way to manage reimbursements or payroll, consider connecting with Cardata to discuss better vehicle reimbursement solutions.
Sources
4. https://gao.az.gov/publications/saam
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