Using your personal vehicle for work can result in the accrual of personal costs for anyone who is covering their own travel expenses. Understanding mileage reimbursement rules, especially in the state of Tennessee, is important for independent contractors, employee drivers for private companies, as well as state employees. This blog will help you understand the nuances of mileage reimbursement, ensuring you’re informed about the standard mileage rate, IRS guidelines, and other state regulations.
Federal guidelines for mileage reimbursement
The Internal Revenue Service (IRS) determines the standard mileage rate for the whole of the US every year. For 2025, the IRS standard mileage rate was set to $0.70 cents per mile, which is up from last year’s $0.67. This rate is the benchmark rate for which anyone incurring costs for the business use of their personal vehicles can receive a reimbursement.
This IRS standard rate isn’t mandatory for employers to follow, sometimes it’s used as a guide when constructing their reimbursement policies. Employers will often use this rate to simplify tax reporting and ensure fairness in compensating employees for their business travel.
Tennessee state specific mileage reimbursement rules
Tennessee does not impose a specific state mileage rate for private employers or independent contractors. However, entities in the state of Tennessee may align with the IRS standard mileage rate for consistency and ease of administration.
Fair Labor Standards Act (FLSA)
While the IRS standard rate is not mandated for employers of Tennessee, the Fair Labor Standards Act is mandated. The FLSA ensures that anyone who incurs work related expenses, like the costs associated with the use of a personal vehicle, must be reimbursed insofar as to not have an income diminished below the federal minimum wage of $7.25. [1]
For independent contractors
Independent contractors are typically reimbursed based on the mileage reimbursement rates outlined in their contracts. Contractors who are not reimbursed according to the terms of their contracts can claim mileage as a deductible business expense on their federal tax returns. It’s critical for individuals in these circumstances to accurately track their mileage to substantiate these claims.
For private companies
Private companies should clearly establish and outline their reimbursement policies. As mentioned above, companies are not required to adhere to the IRS standard rate, but many do for simplicity and fairness.
Documentation and reporting
Accurate documentation is critical for both fair reimbursement and tax deduction purposes, so keeping detailed logs like dates, purposes of trips, starting and ending locations and times, and the number of miles driven, is necessary. This applies to both employees and independent contractors, alike.
If a reimbursement exceeds the IRS rate, the excess amount is considered income, so is therefore taxable. Independent contractors can deduct mileage expenses through their Schedule C if they can succinctly and accurately maintain detailed records. [2]
If you have any concerns about your reimbursements, make sure you consult a tax professional to assist you with navigating these complexities. Employees who are not reimbursed for their work-related travel expenses can potentially deduct these through their taxes, subject to specific IRS rules.
Vehicle Reimbursement Programs
Alternatively, there are vehicle reimbursement programs that allow for businesses to off-load administrative overhead and tedious logging and manual tracking of mileage.
463 Accountable Allowance
An accountable allowance is a flat rate or stipend paid out by the employer to the employee for the use of their personal vehicle for work related travel. The allowance can be both tax-free and equitable if aligned with the IRS standard rate and done correctly, but it does run the risk of both over and underpayment if the employee is a higher-mileage or lower-mileage driver.
Fixed and Variable Rate (FAVR)
FAVR is a popular vehicle reimbursement program that accounts for both fixed and variable costs in its reimbursement calculations. Its attention to the minutiae of vehicle costs make it the most equitable and cost-effective choice for employers.
Both 463 Accountable Allowance and FAVR are best utilized through a vehicle program partner like Cardata. By using a knowledgeable partner, companies can set their businesses objectives for their vehicle programs and work with their partner to achieve those goals.
Best practices for mileage reimbursement
To ensure smooth and compliant mileage reimbursement processes, consider these best practices:
- Develop a comprehensive mileage reimbursement policy at your work, including the rate of reimbursement and which pieces of required documentation must be submitted by the employee.
- Use mileage tracking apps or tools to ensure accuracy and compliance.
- Regularly evaluate and update your reimbursement policies to stay aligned with IRS guidelines and state rules and regulations – which are also subject to change.
Resources for further reading
IRS Publication 463
This publication details all the information you’ll need about travel expenses, including what can be deducted and the necessary recordkeeping requirements. [3]
Tennessee Department of Labor and Workforce Development
This resource is useful for specific insights about state labor laws. [4]
Company policies
Always refer to your individual contracts and company policies for specific terms and conditions regarding mileage reimbursement.
Sources
[1] https://eclaw.com/tennessee-fair-labor-standards-act/
[3] https://www.irs.gov/pub/irs-pdf/p463.pdf
[4] https://www.tn.gov/workforce.html
Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers nor accountants or agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.
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