What Steps Should Finance Take to Reimburse Gas Usage in the US?

Gas usage represents a substantial portion of vehicle-related business expenses. Finance teams in U.S.-based organizations must navigate a complex framework of IRS regulations, reimbursement structures, and cost-containment strategies to accurately and compliantly reimburse employees for fuel. To achieve this, finance departments should focus on establishing standardized reimbursement programs, maintaining detailed documentation, selecting the right method of reimbursement, and leveraging technology to streamline administration.

Establishing a Reimbursement Framework

The first step for finance is to select an appropriate reimbursement framework. This decision must align with company goals, employee driving patterns, and IRS tax compliance requirements. Most U.S. companies opt for either a Cents Per Mile (CPM) or Fixed and Variable Rate (FAVR) reimbursement program.

The CPM method offers a straightforward, standardized rate per business mile driven—70 cents per mile for 2025 as set by the IRS. This model bundles costs for gas, maintenance, depreciation, and insurance into a single per-mile rate, making administration relatively simple but potentially inequitable across different usage levels. It tends to favor high-mileage drivers and may undercompensate those with lower business mileage.

In contrast, FAVR divides costs into fixed (depreciation, insurance, registration) and variable (gas, maintenance, tire wear) components, allowing for tailored reimbursements based on actual usage and regional cost variances. It is well-suited for companies with drivers who travel at least 5,000 miles per year and requires that vehicles fall within cost thresholds set by the IRS—$61,200 for 2025.

Ensuring IRS Compliance

Finance must ensure that any reimbursement method complies with IRS rules to maintain tax-free status for both employer and employee. For CPM, reimbursements are tax-free only up to the IRS mileage rate; exceeding this incurs payroll and income tax obligations. For FAVR, compliance is more complex but offers advantages: reimbursements can exceed the IRS standard rate without triggering tax liabilities if vehicle eligibility and reporting rules are met.

To remain compliant, organizations must use an accountable plan. Under this framework, employees must prove business use of their vehicles, document mileage accurately, and return any excess reimbursement within a designated time frame—typically 30 days.

Documenting Gas Usage and Mileage

Effective gas reimbursement begins with meticulous documentation. Employees should log business mileage, dates, trip purposes, odometer readings, and receipts where applicable. This applies across both CPM and FAVR structures. Failing to maintain these logs risks disqualifying reimbursements from tax-free treatment and exposes the organization to IRS penalties.

For companies employing FAVR programs, mileage logs are essential not only for IRS compliance but also for adjusting variable reimbursement components. Since gas costs fluctuate by region and time, this data is vital for ensuring fairness and cost accuracy.

Leveraging Mileage Tracking Technology

Manual mileage logging can be error-prone and time-consuming. To reduce administrative burden, many organizations are adopting mileage tracking apps. These apps automatically record trip distances, segment personal from business use, and integrate with reimbursement platforms. Employees can save up to 42 hours per year using such tools, and companies benefit from improved audit readiness and data accuracy.

Moreover, mobile apps like Cardata Mobile not only track mileage but also calculate reimbursements, update gas cost indexes, and produce IRS-compliant reports. These tools enhance operational efficiency and transparency while reducing the risk of overpayment or underpayment.

Setting Fair and Sustainable Reimbursement Rates

Finance teams should use real-time data to set reimbursement rates that reflect regional gas prices and vehicle costs. FAVR models support this by using geographic cost indexes to calculate variable rates. This ensures drivers in high-cost areas receive adequate compensation, while preventing overpayment in low-cost regions.

Additionally, finance departments should review and adjust reimbursement rates regularly to reflect inflation, changes in IRS rates, or market fuel volatility. In 2025, pressures pushed the standard IRS mileage rate to 70 cents, an increase from 67 cents in 2024, highlighting the need for annual rate evaluations.

Piloting and Scaling Reimbursement Programs

Before organization-wide implementation, piloting a reimbursement model with a representative employee group allows finance to evaluate cost impacts and compliance gaps. This pilot approach helps optimize policies, test administrative workflows, and gain employee feedback. FAVR programs, in particular, benefit from this approach due to their complexity and regional sensitivity.

Upon successful piloting, finance can scale the program using cloud-based platforms. Tools like Cardata Cloud support program expansion by automating rate calculations, approvals, payments, and reporting—critical for maintaining consistency and compliance across distributed teams.

Monitoring and Auditing

Ongoing monitoring ensures that gas reimbursements remain fair, accurate, and compliant. Finance departments should implement periodic audits of mileage logs, receipt submissions, and reimbursement reports. These audits safeguard against fraud, identify anomalies, and verify adherence to IRS rules.

Additionally, integrating GPS and telematics data can enhance oversight by cross-verifying mileage claims. For businesses reimbursing substantial gas usage, such monitoring reduces liability and aligns with best practices in corporate governance.

Communicating Reimbursement Policies

Finance must also ensure clear communication of reimbursement policies to employees. Guidelines should include how to log mileage, submit reports, resolve discrepancies, and understand tax implications. Miscommunication can result in non-compliance, delayed payments, or dissatisfaction among drivers.

Educational initiatives such as onboarding sessions, FAQs, and training on mobile tracking apps help employees comply with documentation requirements and use technology effectively.

Mitigating Risk Through Insurance Oversight

Gas reimbursement programs—particularly those involving employee-owned vehicles—necessitate close attention to insurance coverage. Finance teams should coordinate with HR and risk management to verify that reimbursed drivers hold appropriate coverage, including personal injury protection and liability insurance.

For FAVR programs, businesses can set insurance minimums above state thresholds to reduce liability exposure. Ensuring that drivers do not rely solely on personal policies for business use is essential; otherwise, companies risk uncovered claims and litigation.

Evaluating Cost-Benefit Outcomes

Finally, finance departments should routinely assess the cost-effectiveness of their reimbursement model. Compared to traditional fleet management, reimbursement programs like FAVR can save companies up to 30% in vehicle-related expenses by eliminating depreciation, maintenance, and administrative overhead.

Additionally, transitioning from taxable allowances to compliant, non-taxable reimbursements reduces tax liabilities and boosts employee take-home pay—an important factor in retention and satisfaction.

By strategically implementing a reimbursement program grounded in IRS compliance, technological efficiency, and financial sustainability, finance departments can ensure accurate gas usage reimbursement while supporting employee mobility and corporate fiscal health.