Do you drive your personal vehicle for work in Virginia? If so, it’s important to understand the mileage reimbursement rules in your state. Alternatively, if you’re an employer or administrator responsible for employees who drive their personal vehicles for work, you, too, should understand mileage reimbursement rules in your state.
Mileage reimbursement concerns the amount an employee is entitled to for using their personal vehicle for work purposes. This blog will discuss elements of mileage reimbursement in the state of Virginia, the applicable IRS rules, and how Virginia’s approach aligns with federal guidelines.
Federal guidelines and IRS standard mileage rate
The IRS, which is the federal level tax body in the US, sets the standard mileage rate, which is used to calculate mileage reimbursement across the country. For 2024, the IRS standard mileage rate is $0.67 cents per mile. This rate covers the costs associated with using one’s personal vehicle for business purposes, including fuel, maintenance, insurance, and depreciation [1] [2]
Mileage reimbursement in Virginia
State laws and reimbursement rates
Virginia does not have specific state laws ordering mileage reimbursement for private sector employees. This means that your employer isn’t actually obligated to reimburse you for the use of your personal vehicle for work. Employers are welcome to reimburse up to the IRS rate tax free, but they may or may not use a standard rate program. They may, for example, use an alternative program like Cents per Mile (CPM), 463, taxable allowance, or Fixed and Variable Rate (FAVR), to name a few.
By opting to use the IRS standard mileage rate as their reimbursement benchmark, employers will meet minimum compliance standards and can offer tax-free reimbursements. [2]
Business expenses and tax deductions
Eligible business expenses
If you don’t use the standard mileage rate, you may be able to deduct your car expenses, including:
- Depreciation
- Licenses
- Lease
- Payments
- Registration fees
- Gas
- Insurance
- Repairs
- Oil
- Garage
- Rent
- Tires
- Tolls
- Parking fees
We mentioned above that under Virginia law, businesses are not technically mandated to reimburse for the use of personal vehicles for work. Now, while that is true, the Fair Labor Standards Act (FLSA) does mandate that employees’ expenses incurred on the job should not bring an employee’s wages below the federal minimum wage, which is presently $7.25. [3]
If an employee incurs enough job-related costs to diminish their hourly earnings to below the federal minimum wage, then under FLSA, the employer is mandated to reimburse to at least recoup the difference for the employee.
Tax deductions and actual expenses
For self-employed individuals and independent contractors, tracking mileage and vehicle expenses is necessary in order to receive proper and accurate compensation. The IRS allows for two methods to calculate deductions:
1. Standard mileage rate: Using the IRS rate of $0.67 cents per mile for 2024.
2. Actual expenses: Calculating the actual costs of operating the vehicle, including all the elements listed above under eligible business expenses.
Both methods can be quite tedious and time consuming, but record-keeping and maintaining a mileage log to substantiate the deductions on your income tax return are critical. [1] [2]
Record keeping and compliance
Maintaining a mileage log
Accurate and timely record-keeping is important for both compliance and maximizing tax benefits. According to the IRS, your mileage log should include:
- Date and business purpose of each trip
- Starting and ending odometer readings
- Number of miles driven
- Locations visited
This information is important for both employees seeking reimbursement and self-employed individuals claiming mileage deductions.
Best practices for employers
Choosing the right reimbursement method
Employers should choose a reimbursement program that aligns with IRS guidelines and meets their business KPIs. The standard mileage rate is popular due to its simplicity and compliance with tax regulations. Alternatively, the Fixed and Variable Rate (FAVR) method can be used for more customized and accurate reimbursement.
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 the least administratively cumbersome program for employers.
There’s also 463/Tax-Free Car Allowance, or just TFCA, which is an IRS-compliant method of reimbursement that enables organizations to offer a fixed reimbursement component to their drivers with the potential to be 100% tax-free.
Communication and policy implementation
Clear communication about mileage reimbursement policies is important for employee adoption and tax compliance. Employees should understand how to track their mileage, submit reimbursement requests, and comply with company policies.
FAQs on mileage reimbursement in Virginia
Is mileage reimbursement taxable in Virginia?
No, mileage reimbursement up to the IRS standard mileage rate is not taxable. Just make sure you keep accurate records to avoid the pitfalls of taxable allowance. Amounts over and above this rate are taxable as they are considered income.
Can I be reimbursed for tolls and parking fees?
Yes, as long as they were issued while on the clock, tolls and parking fees are reimbursable expenses.
How should self-employed/independent contractors track their mileage?
Self-employed and/or 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 you use a FAVR program.
By following these guidelines and keeping accurate records, Virginian employers and employees can effectively manage mileage reimbursement and ensure compliance with IRS regulations.
Conclusion
Understanding mileage reimbursement laws in Virginia is necessary for both employees and employers. By following one of the IRS-approved methods for reimbursement, like FAVR, 463, or IRS standard rate, both parties can ensure fair compensation for business travel and maximize tax benefits. For personalized advice, consider consulting with a tax professional or HR expert.
Alternatively, if you’re looking for a better way to manage reimbursements or payroll than submitting receipts and time sheets to your employer or the IRS, consider connecting with Cardata to discuss more efficient vehicle reimbursement solutions.
Sources
[1] IRS Standard Mileage Rates | https://www.irs.gov/tax-professionals/standard-mileage-rates
[2] MileIQ | https://www.mileiq.com/
[3] FLSA | https://www.dol.gov/agencies/whd/flsa
[4] Labor Law Center | https://www.laborlawcenter.com/Disclaimer: 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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