Mileage Reimbursement in Minnesota: Rules, Rates

In Minnesota—a state known for its robust economy, vibrant cultural scene, and a deep commitment to worker protections—mileage reimbursement guidelines are clearly defined. Whether you’re a state employee or a private employer, understanding these rules is essential for compliance, transparency, and maintaining a positive work environment.

Understanding Mileage Reimbursement

Mileage reimbursement is the practice of compensating employees for the costs incurred when using their personal vehicles for work-related travel. Typically calculated on a per-mile basis, these reimbursements cover fuel costs as well as the wear and tear on the vehicle. While federal guidelines set by the Internal Revenue Service (IRS) provide a standard rate, individual states—including Minnesota—can have specific regulations and variations that employers must follow.[1]

Federal Guidelines vs. Minnesota-Specific Nuances

The IRS updates its standard mileage rate periodically. As of January 1, 2025, the rate has increased to 70 cents per mile for business travel. This rate is designed to cover the overall costs of vehicle use including fuel, maintenance, and depreciation. However, Minnesota’s rules introduce important nuances:

• State Employee Reimbursements: Minnesota mandates mileage reimbursement for state employees using their personal vehicles for work. Depending on whether a state-owned vehicle is available, the reimbursement rate can vary.
• Private Employers: While not legally required for private employers, offering a fair mileage reimbursement is best practice. It supports compliance with the Minnesota Minimum Wage Law and Workers’ Compensation Statute, fostering a work culture that values employee care.

Minnesota Mileage Reimbursement for State Employees

For state employees, Minnesota law is explicit:

• Using a Personal Vehicle: If an employee uses their personal vehicle because no state vehicle is available, the reimbursement is at the current IRS rate of 70 cents per mile (effective January 1, 2025).
• Declining a State Vehicle: If a state-owned vehicle is offered but the employee opts for their own vehicle, the rate is reduced by 7 cents, bringing the rate to 63 cents per mile.
• Special Accommodations: In cases where specially equipped vehicles—such as vans modified with ramps or lifts—are used, the rate can be as high as 79 cents per mile.

These structured guidelines help ensure that state employees are adequately reimbursed while maintaining consistency with federal standards.[4]

Mileage Reimbursement for Private Employers

Although private employers in Minnesota are not legally obligated to offer mileage reimbursement, many choose to do so as a strategic advantage. Providing fair mileage reimbursement can help

• Comply with the Minnesota Minimum Wage Law: Ensuring that all work-related expenses are properly compensated.
• Fulfill Workers’ Compensation Requirements: Employees injured on the job may be entitled to reimbursement for travel related to medical treatment or vocational rehabilitation.
• Boost Employee Morale: Fair reimbursements reflect a company’s commitment to employee well-being and can enhance your brand as an employer of choice.

Employers have the flexibility to set reimbursement rates; however, any amount exceeding the IRS standard may be considered taxable income for employees.[5]

Tax Implications and Practical Considerations

The IRS-approved mileage rate is set to ensure that reimbursements cover reasonable vehicle-related expenses without creating additional tax burdens:

• Non-Taxable Reimbursements: When reimbursements are at or below the IRS standard (70 cents per mile in 2025), they are typically non-taxable.
• Excess Amounts: Reimbursements that exceed this standard must be reported as taxable income.

This balance aims to protect both employees and employers by aligning compensation with actual travel costs.

Exploring Vehicle Reimbursement Programs

In Minnesota, businesses have the option to tailor their vehicle reimbursement strategies through a variety of programs. A well-designed vehicle reimbursement program can be a tax-free alternative to traditional car allowances or company vehicles. Here are three popular options:

Fixed & Variable Rate (FAVR)

FAVR combines a fixed allowance with a variable per-mile component based on regional cost data. It’s ideal for high-mileage drivers who require a reimbursement plan that reflects actual driving costs. With FAVR, you can reimburse beyond the IRS standard rate—using true market data—to ensure drivers are neither underpaid nor overpaid.

Tax-Free Car Allowance (TFCA)

TFCA offers a fixed monthly allowance that, when paired with detailed mileage tracking, remains tax-free up to the IRS standard rate. It’s best for employers who want to offer a fixed monthly allowance, as well as a per mile rate, to cover employee vehicle ownership costs (the “cost to put a car in your driveway”). TFCA simplifies administration by eliminating complex compliance requirements, provided the total allowance doesn’t exceed IRS limits.

Cents per Mile (CPM)

CPM uses a simple per-mile rate to reimburse business travel. It’s best for drivers with lower annual mileage (typically under 5,000 business miles). It’s easy to administer and inherently tax-free when the rate does not exceed the IRS standard.

By choosing the right mix—or even a combination—of these programs, employers can optimize their mileage reimbursement strategies to meet both business needs and budget constraints.

Leveraging Technology

Vehicle reimbursement programs are best backed by tech designed to simplify administration. Key components include:

Mobile Mileage Tracking Applications: Uses GPS-based tracking to record accurate business mileage. Differentiates business and personal use driving.

Cloud Management Portals: Provides administrators with a customizable dashboard to monitor program metrics, compliance, and reimbursement trends. Enables detailed analysis of mileage data, user activity, and overall reimbursement costs. Simplifies the addition and monitoring of driver profiles, ensuring that reimbursement policies are consistently applied.

Insurance Verification: Insurance verification is a compliance measure for FAVR programs, plus it’s a great derisking strategy for safety-first businesses. Additional tools offer Motor Vehicle Record Monitoring (MVR) and driver safety training, helping employers manage risk and maintain a safe driving environment.

Minnesota at a Glance

Understanding the broader context of Minnesota can help employers tailor their policies appropriately. Here are a few key facts about the state:

• Geography and Demographics: Located in the Upper Midwest and bordered by Canada, Minnesota is known as the “Land of 10,000 Lakes.” With a population of approximately 5.8 million (2024), most residents live in the Twin Cities—Minneapolis and Saint Paul.
  https://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_population
• Economic and Cultural Landscape: Minnesota boasts a diverse economy featuring agriculture, manufacturing, technology, and healthcare, with major companies like Target, UnitedHealth Group, and 3M headquartered in the state.
• Commitment to Fair Labor Practices: The state’s laws and regulations reflect a long-standing commitment to protecting workers’ rights and ensuring equitable compensation.

Conclusion

Whether you are a state employee or a private employer in Minnesota, understanding and applying the correct mileage reimbursement rates is crucial. With the IRS rate set at 70 cents per mile for business travel in 2025—and nuanced adjustments for state vehicles and special accommodations—employers can ensure compliance while supporting their workforce effectively. Additionally, leveraging tools like Ramp’s mileage calculator can simplify these processes, making it easier to integrate accurate reimbursement practices into your payroll system.

For further guidance, always consider consulting with legal, tax, or accounting professionals to tailor your policies to your specific situation and remain up-to-date with evolving standards.

Happy driving and diligent record keeping!

Sources:

1. https://cardata.co/blog/mileage-reimbursement-rules-rates-us-states/
2. https://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_population
3. https://ramp.com/mileage-reimbursement-calculator/minnesota
4. https://mn.gov/mmb/assets/20241223b_tcm1059-662173.pdf
5. https://www.laborlawcenter.com/education-center/minnesota-mileage-reimbursement-law/?srsltid=AfmBOopCSlH0_vMc1rcTS9SHPYsjr4PL8JoY9g4PAkMd4gH-aZ2eA5Be