Mileage reimbursement in Maryland: What you should know in 2024

If you drive for work in the state of Maryland, there are few things you should know about how mileage reimbursement works in your state. Maybe you’re using your personal and privately owned vehicle for business purposes or maybe you’re an employer managing employee travel expenses, either way, understanding how to apply the IRS mileage reimbursement rate can help reduce your costs and simplify tax-filing.

What is the IRS standard mileage rate?

Starting January 2024, the IRS has set its standard mileage rate for business use at $0.67 cents per mile. This rate is designed to cover the costs of operating a vehicle, including gas, maintenance, insurance, and depreciation. The internal revenue service updates their standard rate every year to to keep up with changing costs, and it applies to personal vehicles used for business miles, but not commuting.

However, this rate is not mandatory for employers to follow, unfortunately. Companies in Maryland can choose to reimburse their employees based on receipts submitted by drivers for travel expenses, though the IRS rate is often considered the simplest method.

Fair Labor Standards Act (FLSA)

The Fair Labor Standards Act (FLSA) is a rule by the federal government stating that an employee who drives their own car for work cannot earn less than the federal minimum wage after reimbursement. So if the actual cost to operate their personal vehicle diminishes their earning to below $7.25 an hour, they are eligible for a reimbursement to at least that amount.

So while businesses in Maryland don’t necessarily need to abide by the IRS standard rate when reimbursing their employees for the business use of their personal vehicles, they do need to abide by the FLSA. 

Who benefits from mileage reimbursement?

Mileage reimbursement is a pretty important part of managing employee travel expenses, particularly for state employees who may be driving their personal vehicles for work related tasks. While Maryland doesn’t have a specific mileage reimbursement law, as mentioned above, most businesses, organizations, and government bodies follow the IRS rate or set their own rates based on local travel costs.

If you’re self-employed or work in an industry that involves frequent business travel, like sales or field services, understanding the mileage reimbursement policy can help you maximize your deductions at tax time. Businesses and state agencies also use reimbursement as a way to handle expenses for drivers using privately owned vehicles to conduct work tasks.

Mileage tracking and documentation

Mileage tracking is important if you do want to be reimbursed for your business travel. You need to keep a log of your total miles driven for each trip, the date, and the reason for your trip. 

Whether you’re using an app, a dashboard, or old-fashioned paper logs, detailed tracking can make the reimbursement process seamless.

Here’s what you should include in your mileage log:

• Date and time of the trip
• Starting and ending odometer readings
• Destination
• Purpose of travel (this must be for business use to qualify – obviously)

This information is especially important for anyone who uses the standard mileage rate to claim deductions through their taxes or who files for expense reimbursement.

FAQs: Mileage reimbursement in Maryland

1. Do I have to follow the IRS mileage rate for reimbursement?

While many employers in Maryland follow the IRS mileage reimbursement rate, businesses don’t actually need to reimburse anything – technically. Some may opt to reimburse based on actual costs, however, the IRS rate is considered the most straightforward method.

2. Can I deduct mileage on my taxes if I’m self-employed?

Yes, self-employed people (or 1099 folks) in Maryland can deduct mileage used for business purposes by either using the standard rate or tracking actual costs. Don’t forget to keep accurate records to avoid errors when you’re filing your taxes. 

Other things to consider for Maryland drivers

For businesses and drivers in Maryland, managing business travel goes beyond just mileage. 

Per Diem Rates

If your work involves overnight travel, familiarize yourself with per diem rates for lodging and meals. This is separate from mileage but an important part of overall travel reimbursement.

Workers’ Compensation

If an employee is injured while driving for business purposes, they may be entitled to workers’ compensation, so it’s important to make sure you understand proper mileage documentation.

Minimum Wage

In some cases, an employer may need to reimburse at a rate higher than the IRS rate to meet minimum wage requirements if the lower mileage rate leaves employees effectively earning below the wage threshold (see FLSA above).

Alternative reimbursement methods

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, like Cardata, who runs the FAVR program for you externally.

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. It typically overpays high-mileage drivers and underpays lower mileage drivers, so it isn’t the fairest. This method is straightforward, but should align with federal and state guidelines to ensure non-taxable status.

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. 

Conclusion

Mileage reimbursement is simple but also not simple, it requires diligence for accurate and fair reimbursement because the rules can vary depending on your situation. By understanding how the IRS mileage rate works and keeping proper documentation of business miles, you can ensure that you’re fairly compensated for your travel in Maryland.

Sources

[1] IRS Publication 463: Travel, Entertainment, Gift, and Car Expenses

[2] Maryland Department of Budget and Management: Travel Policy for State Employees

[3] Who Is a 1099 Worker? An Employer’s Guide to Independent Contractors

Mileage reimbursement policies can vary between employers and industries, so always check with your employer or a tax professional for specific guidance. This blog provides general information based on IRS guidelines and Maryland practices as of January 2024.