travel expenses not reimbursed by employer

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What to Do If Your Employer Won’t Reimburse Business Expenses

At Smithey Law Group LLC , our attorneys are frontrunners in the employment law community and have represented employees in thousands of disputes. We have the experience and knowledge to help you recoup your business expenses and damages from your employer.

Is a Business Expense Reimbursement Part of My Wages?

Plain and simple, your employer must pay you wages for your work. And how does the law define wages? Under Maryland law, wages include the following :

Your standard rate of pay (which must comply with the minimum wage laws),
Commissions,
Fringe benefits,
Overtime pay, and
Any other promised compensation.

While business expenses are not listed above, federal law states that your employer must remit payment to you “free and clear” or unconditionally. Your employer’s payment to you is not free and clear if your work requires you to purchase materials or pay other costs for the benefit of your employer, and those costs bring your pay below minimum wage or infringe on your overtime entitlements. Those costs must be reimbursed.

Expenses that are for the benefit of an employer and subject to reimbursement can include the costs of :

Purchasing materials requested explicitly by an employer;
Depreciation in value of a personal vehicle that an employee is obligated to use during working hours;
Mileage for trips an employer requires an employee to make during working hours;
Purchasing tools requested explicitly by an employer;
Buying gas used for trips an employer requires an employee to make during working hours; and
Other travel expenses.

Please keep in mind that an employer’s obligation to compensate an employee for travel expenses does not include an employee’s travels to work before a shift starts or travels back home after a shift ends. Also, an employer doesn’t necessarily have to reimburse an employee for the exact amount of costs they incur. An employer has to pay for only a “reasonable approximation of expenses” its employee collects on its behalf.

In addition to its obligations under federal and state wage laws, your employer also has obligations to you under any employment agreement you have. If a business, agency, or organization promises to pay you a certain wage for your work and also requires you to make purchases that reduce your wages, a failure to reimburse you might be a breach of contract. Your employer’s refusal to cover your business expenses could subject it to a breach of contract lawsuit , regardless of whether the expenses reduce your pay to less than minimum wage or overtime entitlements.

Taking Legal Action Against an Employer that Won’t Reimburse Business Expenses

Unfortunately, some employers put their employees in a position where they have to fight for the compensation they earned. If an employer requires you to use your money or personal belongings to benefit the employer’s business without recompense, you are not receiving your full wages. Employees who do not receive their full wages can file wage complaints with the government or lawsuits in court.

The Employment Standards Service (ESS) of the Maryland Department of Labor and the Wage and Hour Division (WHD) of the U.S. Department of Labor handle wage complaints against employers that fail to reimburse their employees . The ESS and WHD investigate complaints, review evidence, and conduct interviews and conferences in an effort to resolve complaints. And if the WHD or ESS is unable to adjudicate a wage complaint, an employee still has the option of suing their employer in court.

If their complaint or lawsuit is successful, an employee can win remedies such as :

Liquidated damages,
Treble damages, and
Attorney fees.

An employer that willfully fails to reimburse an employee could also be subject to civil and criminal penalties.

There are many steps to initiating and maintaining a legal complaint against your employer for improper payment of wages. As soon as a wage issue arises at your workplace, you should speak to an experienced wage and hour attorney to help ensure that you take the right course of action to get the compensation your employer owes you.

Deadline for Filing a Complaint or Lawsuit

Not only do you need to file your wage complaint or lawsuit in the right place, but you also need to file your legal action on time. You must file your complaint with the WHD within two years if your employer’s failure to reimburse you is not willful. And you must file with the WHD within three years if your employer’s actions are willful. Under Maryland law , you have two years to file a complaint with the ESS and three years to file a lawsuit in court.

Let Smithey Law Group Help You

You worked hard on your own to earn money at work; why should you have to fight alone to recover that money from your employer? The answer is simple: You don’t have to fight alone to recover your wages, nor should you. At Smithey Law Group , we focus exclusively on representing individuals in employment disputes. We are experienced and knowledgeable regarding how to resolve the employment law challenges Maryland residents face. We are also award-winning leaders in the employment law community.

If you are searching for an advocate who gets results and can successfully litigate, negotiate, and educate on matters regarding employment, speak to us. We are sought-after professionals who can maximize your recovery and protect your rights. You can call us at 410-881-8190 or contact us online whenever you need help.

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Understanding business travel deductions

Here are some tax details all business travelers should know

Business travel deductions are available when employees must travel away from their tax home or main place of work for business reasons. A taxpayer is traveling away from home if they are away for longer than an ordinary day's work and they need to sleep to meet the demands of their work while away.

Travel expenses must be ordinary and necessary. They can't be lavish, extravagant or for personal purposes.

Employers can deduct travel expenses paid or incurred during a temporary work assignment if the assignment length does not exceed one year.

Travel expenses for conventions are deductible if attendance benefits the business. There are special rules for conventions held outside North America .

Deductible travel expenses include:

Travel by airplane, train, bus or car between your home and your business destination.
Fares for taxis or other types of transportation between an airport or train station and a hotel, or from a hotel to a work location.
Shipping of baggage and sample or display material between regular and temporary work locations.
Using a personally owned car for business.
Lodging and meals .
Dry cleaning and laundry.
Business calls and communication.
Tips paid for services related to any of these expenses.
Other similar ordinary and necessary expenses related to the business travel.

Self-employed individuals or farmers with travel deductions

Those who are self-employed can deduct travel expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) .
Farmers can use Schedule F (Form 1040), Profit or Loss From Farming .

Travel deductions for the National Guard or military reserves

National Guard or military reserve servicemembers can claim a deduction for unreimbursed travel expenses paid during the performance of their duty .

Recordkeeping

Well-organized records make it easier to prepare a tax return. Keep records such as receipts, canceled checks and other documents that support a deduction.

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Everything You Need to Know About the Business Travel Tax Deduction

Justin is an IRS Enrolled Agent, allowing him to represent taxpayers before the IRS. He loves helping freelancers and small business owners save on taxes. He is also an attorney and works part-time with the Keeper Tax team.

You don’t have to fly first class and stay at a fancy hotel to claim travel expense tax deductions. Conferences, worksite visits, and even a change of scenery can (sometimes) qualify as business travel.

What counts as business travel?

The IRS does have a few simple guidelines for determining what counts as business travel. Your trip has to be:

Mostly business
An “ordinary and necessary” expense
Someplace far away from your “tax home”

What counts as "mostly business"?

The IRS will measure your time away in days. If you spend more days doing business activities than not, your trip is considered "mostly business". Your travel days are counted as work days.

Special rules for traveling abroad

If you are traveling abroad for business purposes, you trip counts as " entirely for business " as long as you spend less than 25% of your time on personal activities (like vacationing). Your travel days count as work days.

So say you you head off to Zurich for nine days. You've got a seven-day run of conference talks, client meetings, and the travel it takes to get you there. You then tack on two days skiing on the nearby slopes.

Good news: Your trip still counts as "entirely for business." That's because two out of nine days is less than 25%.

What is an “ordinary and necessary” expense?

“Ordinary and necessary” means that the trip:

Makes sense given your industry, and
Was taken for the purpose of carrying out business activities

If you have a choice between two conferences — one in your hometown, and one in London — the British one wouldn’t be an ordinary and necessary expense.

What is your tax home?

A taxpayer can deduct travel expenses anytime you are traveling away from home but depending on where you work the IRS definition of “home” can get complicated.

Your tax home is often — but not always — where you live with your family (what the IRS calls your "family home"). When it comes to defining it, there are two factors to consider:

What's your main place of business, and
How large is your tax home

What's your main place of business?

If your main place of business is somewhere other than your family home, your tax home will be the former — where you work, not where your family lives.

For example, say you:

Live with your family in Chicago, but
Work in Milwaukee during the week (where you stay in hotels and eat in restaurants)

Then your tax home is Milwaukee. That's your main place of business, even if you travel back to your family home every weekend.

How large is your tax home?

In most cases, your tax home is the entire city or general area where your main place of business is located.

The “entire city” is easy to define but “general area” gets a bit tricker. For example, if you live in a rural area, then your general area may span several counties during a regular work week.

Rules for business travel

Want to check if your trip is tax-deductible? Make sure it follows these rules set by the IRS.

1. Your trip should take you away from your home base

A good rule of thumb is 100 miles. That’s about a two hour drive, or any kind of plane ride. To be able to claim all the possible travel deductions, your trip should require you to sleep somewhere that isn’t your home.

2. You should be working regular hours

In general, that means eight hours a day of work-related activity.

It’s fine to take personal time in the evenings, and you can still take weekends off. But you can’t take a half-hour call from Disneyland and call it a business trip.

Here's an example. Let’s say you’re a real estate agent living in Chicago. You travel to an industry conference in Las Vegas. You go to the conference during the day, go out in the evenings, and then stay the weekend. That’s a business trip!

3. The trip should last less than a year

Once you’ve been somewhere for over a year, you’re essentially living there. However, traveling for six months at a time is fine!

For example, say you’re a freelancer on Upwork, living in Seattle. You go down to stay with your sister in San Diego for the winter to expand your client network, and you work regular hours while you’re there. That counts as business travel.

What about digital nomads?

With the rise of remote-first workplaces, many freelancers choose to take their work with them as they travel the globe. There are a couple of requirements these expats have to meet if they want to write off travel costs.

Requirement #1: A tax home

Digital nomads have to be able to claim a particular foreign city as a tax home if they want to write off any travel expenses. You don't have to be there all the time — but it should be your professional home base when you're abroad.

For example, say you've rent a room or a studio apartment in Prague for the year. You regularly call clients and finish projects from there. You still travel a lot, for both work and play. But Prague is your tax home, so you can write off travel expenses.

Requirement #2: Some work-related reason for traveling

As long as you've got a tax home and some work-related reason for traveling, these excursion count as business trips. Plausible reasons include meeting with local clients, or attending a local conference and then extending your stay.

However, if you’re a freelance software developer working from Thailand because you like the weather, that unfortunately doesn't count as business travel.

The travel expenses you can write off

As a rule of thumb, all travel-related expenses on a business trip are tax-deductible. You can also claim meals while traveling, but be careful with entertainment expenses (like going out for drinks!).

Here are some common travel-related write-offs you can take.

🛫 All transportation

Any transportation costs are a travel tax deduction. This includes traveling by airplane, train, bus, or car. Baggage fees are deductible, and so are Uber rides to and from the airport.

Just remember: if a client is comping your airfare, or if you booked your ticket with frequent flier miles, then it isn't deductible since your cost was $0.

If you rent a car to go on a business trip, that rental is tax-deductible. If you drive your own vehicle, you can either take actual costs or use the standard mileage deduction. There's more info on that in our guide to deducting car expenses .

Hotels, motels, Airbnb stays, sublets on Craigslist, even reimbursing a friend for crashing on their couch: all of these are tax-deductible lodging expenses.

🥡 Meals while traveling

If your trip has you staying overnight — or even crashing somewhere for a few hours before you can head back — you can write off food expenses. Grabbing a burger alone or a coffee at your airport terminal counts! Even groceries and takeout are tax-deductible.

One important thing to keep in mind: You can usually deduct 50% of your meal costs. For 2021 and 2022, meals you get at restaurants are 100% tax-deductible. Go to the grocery store, though, and you’re limited to the usual 50%.

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🌐 Wi-Fi and communications

Wi-Fi — on a plane or at your hotel — is completely deductible when you’re traveling for work. This also goes for other communication expenses, like hotspots and international calls.

If you need to ship things as part of your trip — think conference booth materials or extra clothes — those expenses are also tax-deductible.

👔 Dry cleaning

Need to look your best on the trip? You can write off related expenses, like laundry charges.

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Travel expenses you can't deduct

Some travel costs may seem like no-brainers, but they're not actually tax-deductible. Here are a couple of common ones to watch our for.

The cost of bringing your child or spouse

If you bring your child or spouse on a business trip, your travel expense deductions get a little trickier. In general, the cost of bring other people on a business trip is considered personal expense — which means it's not deductible.

You can only deduct travel expenses if your child or spouse:

Is an employee,
Has a bona fide business purpose for traveling with you, and
Would otherwise be allowed to deduct the travel expense on their own

Some hotel bill charges

Staying in a hotel may be required for travel purposes. That's why the room charge and taxes are deductible.

Some additional charges, though, won't qualify. Here are some examples of fees that aren't tax-deductible:

Gym or fitness center fees
Movie rental fees
Game rental fees

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Where to claim travel expenses when filing your taxes

If you are self-employed, you will claim all your income tax deduction on the Schedule C. This is part of the Form 1040 that self-employed people complete ever year.

What happens if your business deductions are disallowed?

If the IRS challenges your business deduction and they are disallowed, there are potential penalties. This can happen if:

The deduction was not legitimate and shouldn't have been claimed in the first place, or
The deduction was legitimate, but you don't have the documentation to support it

When does the penalty come into play?

The 20% penalty is not automatic. It only applies if it allowed you to pay substantially less taxes than you normally would. In most cases, the IRS considers “substantially less” to mean you paid at least 10% less.

In practice, you would only reach this 10% threshold if the IRS disqualified a significant number of your travel deductions.

How much is the penalty?

The penalty is normally 20% of the difference between what you should have paid and what you actually paid. You also have to make up the original difference.

In total, this means you will be paying 120% of your original tax obligation: your original obligation, plus 20% penalty.

Justin W. Jones, EA, JD

Over 1M freelancers trust Keeper with their taxes

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Everything You Need to Know About the Business Travel Tax Deduction

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travel expenses not reimbursed by employer

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What tax write-offs can I claim?

At Keeper, we’re on a mission to help people overcome the complexity of taxes. We’ve provided this information for educational purposes, and it does not constitute tax, legal, or accounting advice. If you would like a tax expert to clarify it for you, feel free to sign up for Keeper. You may also email [email protected] with your questions.

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What Are Travel Expenses?

Understanding travel expenses, the bottom line.

Deductions & Credits
Tax Deductions

Travel Expenses Definition and Tax Deductible Categories

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

For tax purposes, travel expenses are costs associated with traveling to conduct business-related activities. Reasonable travel expenses can generally be deducted from taxable income by a company when its employees incur costs while traveling away from home specifically for business. That business can include conferences or meetings.

Key Takeaways

Travel expenses are tax-deductible only if they were incurred to conduct business-related activities.
Only ordinary and necessary travel expenses are deductible; expenses that are deemed unreasonable, lavish, or extravagant are not deductible.
The IRS considers employees to be traveling if their business obligations require them to be away from their "tax home” substantially longer than an ordinary day's work.
Examples of deductible travel expenses include airfare, lodging, transportation services, meals and tips, and the use of communications devices.

Travel expenses incurred while on an indefinite work assignment that lasts more than one year are not deductible for tax purposes.

The Internal Revenue Service (IRS) considers employees to be traveling if their business obligations require them to be away from their "tax home" (the area where their main place of business is located) for substantially longer than an ordinary workday, and they need to get sleep or rest to meet the demands of their work while away.

Well-organized records—such as receipts, canceled checks, and other documents that support a deduction—can help you get reimbursed by your employer and can help your employer prepare tax returns. Examples of travel expenses can include:

Airfare and lodging for the express purpose of conducting business away from home
Transportation services such as taxis, buses, or trains to the airport or to and around the travel destination
The cost of meals and tips, dry cleaning service for clothes, and the cost of business calls during business travel
The cost of computer rental and other communications devices while on the business trip

Travel expenses do not include regular commuting costs.

Individual wage earners can no longer deduct unreimbursed business expenses. That deduction was one of many eliminated by the Tax Cuts and Jobs Act of 2017.

While many travel expenses can be deducted by businesses, those that are deemed unreasonable, lavish, or extravagant, or expenditures for personal purposes, may be excluded.

Types of Travel Expenses

Types of travel expenses can include:

Personal vehicle expenses
Taxi or rideshare expenses
Airfare, train fare, or ferry fees
Laundry and dry cleaning
Business meals
Business calls
Shipment costs for work-related materials
Some equipment rentals, such as computers or trailers

The use of a personal vehicle in conjunction with a business trip, including actual mileage, tolls, and parking fees, can be included as a travel expense. The cost of using rental vehicles can also be counted as a travel expense, though only for the business-use portion of the trip. For instance, if in the course of a business trip, you visited a family member or acquaintance, the cost of driving from the hotel to visit them would not qualify for travel expense deductions .

The IRS allows other types of ordinary and necessary expenses to be treated as related to business travel for deduction purposes. Such expenses can include transport to and from a business meal, the hiring of a public stenographer, payment for computer rental fees related to the trip, and the shipment of luggage and display materials used for business presentations.

Travel expenses can also include operating and maintaining a house trailer as part of the business trip.

Can I Deduct My Business Travel Expenses?

Business travel expenses can no longer be deducted by individuals.

If you are self-employed or operate your own business, you can deduct those "ordinary and necessary" business expenses from your return.

If you work for a company and are reimbursed for the costs of your business travel , your employer will deduct those costs at tax time.

Do I Need Receipts for Travel Expenses?

Yes. Whether you're an employee claiming reimbursement from an employer or a business owner claiming a tax deduction, you need to prepare to prove your expenditures. Keep a running log of your expenses and file away the receipts as backup.

What Are Reasonable Travel Expenses?

Reasonable travel expenses, from the viewpoint of an employer or the IRS, would include transportation to and from the business destination, accommodation costs, and meal costs. Certainly, business supplies and equipment necessary to do the job away from home are reasonable. Taxis or Ubers taken during the business trip are reasonable.

Unreasonable is a judgment call. The boss or the IRS might well frown upon a bill for a hotel suite instead of a room, or a sports car rental instead of a sedan.

Individual taxpayers need no longer fret over recordkeeping for unreimbursed travel expenses. They're no longer tax deductible by individuals, at least until 2025 when the provisions in the latest tax reform package are due to expire or be extended.

If you are self-employed or own your own business, you should keep records of your business travel expenses so that you can deduct them properly.

Internal Revenue Service. " Topic No. 511, Business Travel Expenses ."

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 13.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Page 7.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Pages 6-7, 13-14.

Internal Revenue Service. " Publication 463, Travel, Gift, and Car Expenses ," Page 4.

Internal Revenue Service. " Publication 5307, Tax Reform Basics for Individuals and Families ," Pages 5, 7.

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How Do Business Travel Expenses Work?

Employers Pay for Company Business Travel in Several Ways

Employees on Long-Term Assignments
Employers Pay for Travel Expenses?
Know Your Travel Expense Policies
Using Travel As an Employee Incentive

Travel expenses are expenditures that an employee makes while traveling on company business. Company business can include conferences, exhibitions, business meetings, client and customer meetings, job fairs, training sessions, and sales calls, for example.

Expenses can include lodging, personal car mileage reimbursement , flights, ground transportation, tips to bellhops, meals, tips to waiters, room service, and other incidental expenses an employee might experience while on the road.

Expenditures that an organization will reimburse are found in the company’s business travel policy. Become familiar with your company’s policy because expenses, as varied as dry cleaning and gym membership, can be covered for employees on extended trips in addition to the expected travel costs, housing, and meals.

Travel Expenditures for Employees on Long-Term Assignments

When using long-term housing facilities for traveling employees, many employers also supply opportunities for the employee's family to visit when the employee is traveling extensively on business. When an employee is assigned to another company location on a temporary basis, employers will sometimes pay for the family of the employee to visit at prescribed time intervals. This keeps the burden of remote work from affecting family relationships adversely.

Employers seek to provide options of value for employees who are away from home and family for extended periods of time. You need to take advantage of any travel privileges that your employer offers to build employee morale and dedication.

Client entertainment at conferences, on sales calls, and on-site visits is another reimbursable expense, but know your company’s policies so you don’t exceed the limits that are placed on entertainment costs. For example, companies frequently place a cap on what you can spend on taking a client to dinner.

Know also your company's policy on the awarding of airline miles credit. It varies. Some companies allow employees to accrue airline travel miles that they then can use for personal family travel. Others accrue a bank of travel miles that they use to cover additional employee business travel. Again, knowing your company's policies is crucial.

How Do Employers Pay for Employee Travel Expenses?

Typically, organizations pay employee travel expenses in these three ways.

Company credit cards

Credit cards are issued to employees who must travel frequently for business. Employees may charge most of the expenses they incur on a business trip to the company credit card. For reimbursement of incidentals such as tips and fast food, employees will need to fill out an expense report when they return from their trip.

Charge cards are convenient for employees as they do not have to come up with the cash to pay for business expenses prior to reimbursement. Become knowledgeable about your company's policies, though; you may still need to turn in receipts and other supporting documentation even when you charge these expenses to a credit card.

Organizations without employee company credit cards require employees to fill out an expense reimbursement report for each expenditure while the employee is on the road. They generally require receipts and some level of justification for each expense.

Only rarely would an organization ask employees to pay for the big-ticket items such as airfare and seek reimbursement later. A company purchase order or company credit card will pay for large expenses upfront. But employees are often required to pay cash out-of-pocket for day-to-day travel expenses that are later reimbursed.

A per diem is a daily allowance of a certain amount of money that an employee is given to cover all expenses. The employee is responsible for making sound travel expense choices within the parameters of the amount of money that he or she is allotted daily.

Some companies pay directly for transportation and housing but give traveling employees a per diem for all other expenses including meals and ground transportation. Employees have been known to underspend on expenses to keep the extra cash from the per diem. Companies generally allow this.

Know Your Employer's Travel Expense Policies

Employees who travel for business are advised to stay up-to-date on company travel policies and costs covered for reimbursement. Expenses that fall outside of the policies are generally not reimbursed or covered.

Receipts are required by most companies except for those that pay a per diem. Your company also likely has a form that they expect employees to use for turning in travel expenses.

To stay on top of reimbursable expenses, employees are often given a deadline by which they need to file an expense report and turn in applicable receipts. The finance department will have guidelines that help it stay current.

If you have questions about what constitutes appropriate travel expenses in your organization, check with your manager and the Human Resources department. You don't want to spend the money and receive a surprise later.

Employers Are Using Travel As an Employee Incentive

Some employers have started to use travel as an employee incentive. When employees are rewarded with travel by their company for meeting a goal, the incentive travel will increase both employee loyalty and workplace engagement.

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EXPENSES & DEDUCTIONS

Proving employee business expense deductions

Individual Income Taxation

Editor: Mark G. Cook, CPA, CGMA

Prior to the passage of the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115 - 97 , taxpayers were allowed to deduct unreimbursed employee business expenses as miscellaneous itemized deductions, subject to Sec. 67's 2% floor on miscellaneous itemized deductions and Sec. 68's overall limitation on itemized deductions, on Schedule A, Itemized Deductions , of Form 1040, U.S. Individual Income Tax Return . The deduction was disallowed for the years 2018 to 2025 by the enactment in the TCJA of Sec. 67(g), which suspends the allowance of miscellaneous itemized deductions. Nonetheless, because unreimbursed employee business expenses will be deductible again in 2026, and court cases involving disputes between the IRS and taxpayers over their deduction on tax returns for years before 2018 continue to make their way through the courts, knowledge of the details of the unreimbursed employee business expense deduction remains important.

Employee business expense deduction

To get started, what is a deductible unreimbursed employee business expense? Per Sec. 162(a), there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business. Performing services as an employee constitutes a trade or business (see, e.g., Primuth , 54 T.C. 374 (1970)). Thus, with respect to employee business expenses, a deduction under Sec. 162(a) will be allowed for an unreimbursed expense that is:

Paid or incurred during an employee's tax year;
For carrying on his or her trade or business of being an employee; and
Ordinary and necessary.

An expense is ordinary if it is common and accepted in the taxpayer's trade, business, or profession. An expense is necessary if it is appropriate and helpful to the taxpayer's business; it does not have to be required to be considered necessary.

Employer reimbursements

To prevent a taxpayer from obtaining a double benefit, only unreimbursed business expenses are deductible. Also, business expenses are not "necessary" if reimbursement is possible ( Podems , 24 T.C. 21 (1955)). Thus, if an employee incurs an expense that he or she has a right to reimbursement for under an expense reimbursement plan of his or her employer, but the employee fails to obtain reimbursement for the expense, the employee cannot take a Sec. 162(a) deduction for the expense.

This is true regardless of why an employee does not seek reimbursement for a business expense incurred on behalf of his or her employer. The Ninth Circuit held in Orvis , 788 F.2d 1406 (9th Cir. 1986), that a taxpayer's lack of knowledge that his employer had a policy of reimbursing such expenses was not relevant to whether he could take a deduction for the expenses on his personal return.

The burden of proof

Should the tax return be audited or a notice of deficiency be received, the taxpayer generally has the burden of proof. However, the burden of proof switches to the IRS if an individual taxpayer produces credible evidence in support of an expense, has complied with the substantiation requirements for the expense, has maintained all required records for the expense, and has cooperated with reasonable requests by the IRS for witnesses, information, documents, meetings, and interviews regarding the expense.

Credible evidence is evidence that, after critical analysis, the court would find sufficient upon which to base a decision on the issue if no contrary evidence were submitted (without regard to the judicial presumption of IRS correctness). The burden is not shifted if the taxpayer presents incredible or implausible evidence, even if that evidence is not controverted.

Substantiation requirements

An employee must be able to substantiate a deduction for an unreimbursed business expense by keeping (and producing for the IRS, if requested) adequate records. In general, the Code does not require the records to be in a specific form. However, under Sec. 274(d), specific proof is necessary to substantiate deductions for away - from - home travel and business gift expenses, and deductions related to listed property. A taxpayer must substantiate these expenses by adequate records or by sufficient evidence corroborating the taxpayer's own statement showing:

(A) the amount of such expense or other item, (B) the time and place of the travel or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of the person receiving the benefit.

Temp. Regs. Sec. 1. 274 - 5T (c)(2) in general defines "adequate records" as an account book, diary, log, statement of expense, trip sheets, or similar record, and documentary evidence that, in combination, are sufficient to establish each of the required elements of an expense.

Temp. Regs. Sec. 1. 274 - 5T (c)(3) defines "sufficient evidence corroborating the taxpayer's own statement" as the taxpayer's own statement, whether written or oral, containing specific information in detail about the required element of an expense and other corroborative evidence sufficient to establish that element. However, the Tax Court has routinely held that it is not required to accept a taxpayer's self - serving testimony without objective, corroborating evidence.

The taxpayer must substantiate the required elements for every Sec. 274(d) expense. Because Sec. 274(d) overrides the Cohan rule ( Cohan , 39 F.2d 540 (1930)), courts cannot estimate the amount of the taxpayer's expenses.

Temp. Regs. Sec. 1. 274 - 5T (c)(5) offers an exception to the adequate - records rule if the loss of records is due to circumstances beyond the taxpayer's control (e.g., a natural disaster). In this circumstance, the taxpayer has the right to substantiate his or her deductions through reasonable reconstruction of expenses.

If, as scheduled, unreimbursed employee business expenses again become deductible, employees should understand their employer's policy about business expense reimbursements to avoid denial for business expense deductions. If the employer's policy is unclear, the taxpayer should attempt to receive a reimbursement and document the results as evidence. It is important for taxpayers to keep a good record of the business expenses and make sure it is detailed enough to show that the expenses were incurred or paid during the tax year. For deductions for travel expenses, gifts, and deductions related to listed properties, taxpayers must ensure that they can substantiate the deductions under the strict standards in Sec. 274(d).

Editor Notes

Mark G. Cook , CPA, CGMA, MBA, is the lead tax partner with SingerLewak LLP in Irvine, Calif.

For additional information about these items, contact Mr. Cook at 949-623-0478 or [email protected] .

Contributors are members of SingerLewak LLP.

Recent developments in Sec. 355 spinoffs

The research credit: documenting qualified services, income tax treatment of loyalty point programs, tax court rules cancellation of debt is part of gain realization, listing of reportable transactions under the apa.

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.

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Tax issues arise when employers pay employee business travel expenses

Employers must determine proper tax treatment for employees.

Most employers pay or reimburse their employees’ expenses when traveling for business. Generally, expenses for transportation, meals, lodging and incidental expenses can be paid or reimbursed by the employer tax-free if the employee is on a short-term trip. However, the tax rules become more complex when the travel is of a longer duration. Sometimes the travel expenses paid or reimbursed by the employer must be treated as taxable compensation to the employee subject to Form W-2 reporting and payroll taxes.

The purpose of this article is to address some of the more common travel arrangements which can result in taxable income to employees for federal tax purposes. Although business travel can also raise state tax issues, those issues are beyond the scope of this article. This article is intended to be only a general overview as the tax consequences to an employee for a given travel arrangement depend on the facts and circumstances of that arrangement.

In the discussion below, it is assumed that all travel expenses are ordinary and necessary and incurred by an employee (or a partner in a partnership) while traveling away from home overnight for the employer’s business. In addition, it is assumed that the expenses are properly substantiated so that the employer knows (1) who incurred the expense; (2) where, when, why and for whom the expense was incurred, and (3) the dollar amount. Employers need to collect this information within a reasonable period of time after an expense is incurred, typically within 60 days.

Certain meal and lodging expenses can fall within a simplified substantiation process called the “per diem” rules (although even these expenses must still meet some of the substantiation requirements). The per diem rules are outside the scope of this article.

One of the key building blocks for the treatment of employee travel expenses is the location of the employee’s “tax home.” Under IRS and court holdings, an employee’s tax home is the employee’s regular place of work, not the employee’s personal residence or family home. Usually the tax home includes the entire city or area in which the regular workplace is located. Generally, only expenses paid or reimbursed by an employer for an employee’s travel away from an employee’s tax home are eligible for favorable tax treatment as business travel expenses.

Travel to a regular workplace

Usually expenses incurred for travel between the employee’s residence and the employee’s regular workplace (tax home) are personal commuting expenses, not business travel. If these expenses are paid or reimbursed by the employer, they are taxable compensation to the employee. This is the case even when an employee is traveling a long distance between the employee’s residence and workplace, such as when an employee takes a new job in a different city. According to the IRS, if it is the employee’s choice to live away from his or her regular workplace (tax home), then the travel expenses between the two locations which are paid or reimbursed by the employer are taxable income to the employee.

Example: Bob’s personal residence is in Chicago, but his regular workplace is in Atlanta. Bob’s employer reimburses him for an apartment in Atlanta plus his transportation expenses between the two cities. Since Atlanta is Bob’s tax home, these travel expenses are personal commuting expenses and the employer’s reimbursement of the expenses is taxable compensation to Bob.

Travel to two regular workplaces

Sometimes an employer requires an employee to consistently work in two business locations because of the needs of the employer’s business. Factors such as where the employee spends the most time, has the most business activity, and earns the highest income determine which is the primary location with the other being the secondary location. The employee’s residence may be in either the primary or the secondary location. In general, the IRS holds that transportation costs between the two locations can be paid or reimbursed by the employer tax-free. In addition, lodging and meals at the location which is away from the employee’s residence can generally be paid or reimbursed tax-free.

Example: Caroline lives in Location A and works at her company headquarters there. Her employer opens a new store in Location B and asks her to handle the day-to-day operations for two years while the store is getting up to speed. But Caroline is also needed at the headquarters so her employer asks her to spend two days a week at the headquarters in Location A and three days a week at the store in Location B. Because the work at each location is driven by a business need of Caroline’s employer, she is treated as having primary and secondary work locations and is not treated as commuting between the two locations. Caroline’s travel between the two locations and her meals and lodging at Location B can be reimbursed tax-free by her employer.

As a practical matter, the employer must carefully consider and be able to support the business need for the employee to routinely go back and forth between two business locations. In cases involving two business locations, the courts have looked at time spent, business conducted and income generated in each location. Merely having an employee “sign in” or “touch down” at a business location near his or her residence is unlikely to satisfy the requirements for having two regular workplaces. Instead, the IRS would likely consider the employee as having only one regular workplace with employer-paid travel between the employee’s residence and the regular workplace being taxable commuting expenses.

Travel when a residence is a regular workplace

In some cases an employer hires an employee to work generally, or only, from the employee’s home, as he or she is not physically needed at an employer location. If the employer requires the employee to work just from his or her residence on a regular basis, does not require or expect the employee to travel to another office on a regular basis, and does not provide office space for the employee elsewhere, then the residence can be the tax home since it is the regular workplace for the employee. When the employee does need to travel away from his or her residence (tax home), the temporary travel expenses can be paid or reimbursed by the employer on a tax-free basis.

Example: Jason is a computer programmer and works out of his home in Indianapolis for an employer in Seattle. He periodically travels to Seattle for meetings with his team. Since Jason has no assigned office space in Seattle and is expected by his employer to work from his home, Jason’s travel expenses to Seattle can be reimbursed by his employer on a tax-free basis.

Travel to a temporary workplace

Sometimes an employer temporarily assigns an employee to work in a location that is far from the employee’s regular workplace, with the expectation that the employee will return to his or her regular workplace at the end of the assignment. In this event, the key question is whether the employee’s tax home moves to the temporary workplace. If the tax home moves to the temporary workplace, the travel expenses between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are taxable compensation to the employee because they are personal commuting expenses rather than business travel expenses. Whether or not the employee’s tax home moves to the temporary workplace depends on the duration of the assignment and the expecations of the parties.

One year or less . If the assignment is expected to last (and actually does last) one year or less, the employee’s tax home generally does not move to the temporary workplace. Therefore, travel expenses between the employee’s residence and temporary workplace that are paid or reimbursed by the employer are typically tax-free to the employee as business travel.

Example: Janet lives and works in Denver but is assigned by her employer to work in San Francisco for 10 months. She returns to Denver after the 10-month assignment. Janet’s travel expenses associated with her assignment in San Francisco that are reimbursed by her employer are not taxable income to her as they are considered temporary business travel and not personal commuting expenses.

More than one year or indefinite . If the assignment is expected to last more than one year or is for an indefinite period of time, the employee’s tax home generally moves to the temporary workplace. This is the case even if the assignment ends early and actually lasts one year or less. Consequently, travel expenses between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are taxable compensation to the employee as personal commuting expenses.

Example: Chris lives and works in Dallas but is assigned by his employer to work in Oklahoma City for 15 months before returning to Dallas. Chris’s travel expenses associated with his assignment to Oklahoma City that are reimbursed by his employer are taxable income to him as personal commuting expenses.

One year or less then extended to more than one year . Sometimes an assignment is intended to be for one year or less, but then is extended to more than one year. According to the IRS, the tax home moves from the regular workplace to the temporary workplace at the time of the extension. Therefore, travel expenses incurred between the employee’s residence and the temporary workplace that are paid or reimbursed by the employer are non-taxable business travel expenses until the time of the extension, but are taxable compensation as personal commuting expenses after the extension.

Example: Beth’s employer assigns her to a temporary workplace in January with a realistic expectation that she will return to her regular workplace in September. However, in August, it is clear that the project will take more time so Beth’s assignment is extended to the following March. Once Beth’s employer knows, or has a realistic expectation, that Beth’s work at the temporary location will be for more than one year, changes are needed to the tax treatment of Beth’s travel expenses. Only the travel expenses incurred prior to the extension in August can be reimbursed tax-free; travel expenses incurred and reimbursed after the extension are taxable compensation.

When an employee’s residence and regular workplace are in the same geographic location and the employee is away on a temporary assignment, the employee will often return to the residence for weekends, holidays, etc. Expenses associated with travel while enroute to and from the residence can be paid or reimbursed by an employer tax-free, but only up to the amount that the employee would have incurred if the employee had remained at the temporary workplace instead of traveling home.

Travel to a temporary workplace – Special situations

In order for an employer to treat its payment or reimbursement of travel expenses as tax-free rather than as taxable compensation, the employee’s ties to the regular workplace must be maintained. The employee must expect to return to the regular workplace after the assignment, and actually work in the regular workplace long enough or regularly enough that it remains the employee’s tax home. Special situations arise when an employee’s assignment includes recurring travel to a temporary workplace, continuous temporary workplaces, and breaks in assignments to temporary workplaces.

Recurring travel to a temporary workplace . Although the IRS has not published formal guidance which can be relied on, it has addressed situations where an employee has a regular workplace and a temporary workplace to which the employee expects to travel over more than one year, but only on a sporadic and infrequent basis. Under the IRS guidance, if an employee’s travel to a temporary workplace is (1) sporadic and infrequent, and (2) does not exceed 35 business days for the year, the travel is temporary even though it occurs in more than one year. Consequently, the expenses can be paid or reimbursed by an employer on a tax-free basis as temporary business travel.

Example: Stephanie works in Location A but will travel on an as-needed basis to Location B over the next three years. If Stephanie’s travel to Location B is infrequent and sporadic and does not exceed 35 business days a year, her travel to Location B each year can be reimbursed by her employer on a tax-free basis as temporary business travel.

Continuous temporary workplaces . Sometimes an employee does not have a regular workplace but instead has a series of temporary workplaces. If the employee’s residence cannot qualify as his or her tax home under a three-factor test developed by the IRS, the employee is considered to have no tax home and is “itinerant” for travel reimbursement purposes. In this case, travel expenses paid by the employer generally would be taxable income to the employee.

Example: Patrick originally worked in Location A, but his employer sends him to Location B for eleven months, then assigns Patrick to Location C for another eight months. Patrick will be sent to Location D after Location C with no expectation of returning to Location A. Patrick does not maintain a residence in Location A. Travel expenses paid to Patrick by his employer will likely be taxable income to him.

Breaks between temporary workplaces . In an internal memorandum, the IRS addresses the outcome when an employee has a break in assignments to temporary workplaces. When applying the one-year rule, the IRS notes that a break of three weeks or less is not enough to prevent aggregation of the assignments, but a break of at least seven months would be. Some companies choose to not aggregate assignments when the breaks are shorter than seven months but are considerably longer than three weeks, given the lack of substantive guidance from the IRS on this issue.

Example: Don’s regular workplace is in Location A. Don’s employer sends him to Location B for ten months, back to Location A for eight months, and then to Location B again for four months. Although Don’s time in Location B totals 14 months, since the assignments there are separated by a break of at least seven months, they are not aggregated for purposes of applying the one-year rule. Consequently, the travel expenses associated with each separate assignment to Location B can be reimbursed by the employer on a tax-free basis as temporary business travel since each assignment lasted less than a year.

Conclusion

The tax rules regarding business travel are complex and the tax treatment can vary based on the facts of a situation. Employers must carefully analyze business travel arrangements to determine whether travel expenses that they pay or reimburse are taxable or nontaxable to employees.

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KPMG report: Taxation of paid or reimbursed travel expenses and determination of employee’s tax home

Issues relating to whether paid or reimbursed travel expenses may be taxable or nontaxable to employees

Issues relating to whether paid or reimbursed travel expenses may be taxable or nontaxable

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In response to the coronavirus (COVID-19) pandemic, organizations across the globe experienced a workplace transformation by expanding and enabling remote work practically overnight. The rise in flexible worksite arrangements presents a challenge to employers that provide them and pay or reimburse employees for business travel because the rules for when reimbursed expenses related to business travel can be excluded from an employee’s compensation are complex, often outdated, and derived from court decisions with very specific facts and circumstances.

Read a May 2023 report * [PDF 431 KB] prepared KPMG LLP tax professionals that discusses the issues relating to whether paid or reimbursed travel expenses may be taxable or nontaxable to employees, focusing in particular on the analysis of the location of an employee’s tax home, including whether a personal residence may be considered a tax home.

*This article originally appeared in Tax Notes Federal (May 1, 2023) and is provided with permission.

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.

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April 14, 2024
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Do employers have to reimburse travel expenses?

Travel for business purposes is a common aspect of many jobs in the United States, whether it involves attending conferences, meeting clients, or collaborating with team members across different locations. However, the question of whether employers are required to give travel expense reimbursement to employees.

In this blog, we will explore the legal framework, employer policies, and best practices for travel expense reimbursement in the United States.

Legal Obligations For Travel Expense Reimbursement:

In the United States, there is no federal law that explicitly requires employers to reimburse employees for business-related travel expenses. The Fair Labor Standards Act (FLSA), which governs minimum wage, overtime pay, and other labor standards, does not specifically address travel expense reimbursement. However, some states may have specific regulations mandating reimbursement for certain expenses. For example, California requires employers to reimburse employees for all necessary expenses incurred in the course of their employment.

Employer Policies For Travel Expense Reimbursement:

While there may not be a legal requirement for travel pay or reimburse travel expenses, many employers choose to do so as part of their employee benefits package or as a matter of company policy. These policies typically outline what expenses are eligible for reimbursement, the documentation required, and the process for submitting expense reports. Employers should communicate these policies clearly to employees to avoid misunderstandings and ensure compliance.

Types of Travel Expenses:

There can be different types of travel pay for different travel expenses can include a variety of costs, such as transportation, lodging, meals, per diem , and incidentals. Employers may choose to reimburse these expenses in different ways, such as providing a per diem allowance based on the location and duration of the trip or reimbursing actual expenses incurred by the employee. It’s important for employers to establish consistent guidelines for reimbursement to ensure fairness and transparency.

Documentation and Reporting Of Travel Expense Reimbursement:

Proper documentation is essential when seeking reimbursement for travel expenses. Employees should keep detailed records of their expenditures, including receipts, invoices, and mileage logs. Employers may require employees to submit expense reports within a specified timeframe, along with supporting documentation. Failure to provide adequate documentation could result in delays or denial of reimbursement.

Negotiation and Agreements For Travel Expense Reimbursement:

Employers and employees may negotiate reimbursement arrangements as part of the employment contract or during salary negotiations. It’s crucial for both parties to clearly define expectations regarding travel pay upfront to avoid disputes later on. Employers should be transparent about their reimbursement policies, while employees should advocate for fair compensation for their business-related travel.

Tax Implications For Travel Expense Reimbursement:

Both employers and employees should consider the tax implications of travel expense reimbursement. In general, reimbursed expenses that are incurred for business purposes and properly documented are not considered taxable income for employees. However, employers should consult with tax professionals to ensure compliance with relevant tax laws and regulations.

Bottom Line:

While there may not be a federal legal requirement for employers to reimburse travel expenses in the United States, many choose to do so as a matter of policy or to attract and retain talent. Clear communication, consistent policies, and proper documentation are essential for ensuring fair and transparent reimbursement processes for both employers and employees. By understanding the legal framework, negotiating reimbursement arrangements, and adhering to best practices, employers and employees can navigate travel expenses with confidence and clarity.

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What is a Tax Home, and How Does it Impact Travel Expenses?

Written by Liz Farr, CPA

Modified Aug 8, 2019

Today’s super-mobile workforce means that you may have clients who are splitting their time between multiple work locations. In these situations, understanding the concept of a tax home will help clarify the treatment of travel expenses.

What is a Tax Home?

The IRS defines a tax home as the city or general area where someone’s main place of business or work is located. If your client travels away from their tax home for work purposes, their travel expenses may be deductible.

“May be deductible” has taken on new meaning since the Tax Cuts and Jobs Act was passed in late 2017. Under prior law, employees could deduct unreimbursed work expenses, including travel expenses, as a miscellaneous itemized deduction. However, from 2018 though 2025, that deduction has been suspended, except for Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.

The best bet for employees who no longer qualify to deduct their travel expenses is to set up an accountable plan with their employer. Reimbursed travel expenses under an accountable plan are not taxable to the employee, while reimbursements under a non-accountable plan are included in the employee’s wages.

However, self-employed individuals can still deduct expenses for travel away from their tax home as business expenses.

A tax home may or may not be the same place as the family home, or a place that your client returns to regularly. For clients who work in more than one place, their tax home is their main place of business or work. This is determined by considering the following factors:

The total time spent in each place.
The level of business or work activity in each place.
The relative amount of income earned in each place.

Expenses for work-related travel away from someone’s tax home are deductible or can be reimbursed tax-free under an accountable plan. Travel expenses include transportation, meals, lodging, laundry and dry cleaning, and incidentals.

For example, Ryan is a self-employed consultant living in Denver. He spends one week of every month working onsite for a client in Salt Lake City. Ryan spends the remaining three weeks of the month working with clients in the Denver area. Ryan’s tax home is Denver, so his travel, lodging and meal expenses for his monthly trips to Salt Lake City are deductible.

Over time, Ryan’s client in Salt Lake City becomes a bigger part of his work. Eventually, Ryan is spending all of his working time in Salt Lake City and flying home to Denver on the weekends. Now, his tax home is Salt Lake City, and neither his living expenses in Salt Lake City nor his plane fare between Denver and Salt Lake City are deductible.

What About Temporary Work Assignments?

It’s not unusual for an employee to be sent to work in a different location. If that assignment is temporary and the employee maintains a home in the original location, the tax home is still the original location. Travel expenses will be deductible for a contractor. Employee reimbursements under an accountable plan will be tax-free.

But, if the assignment is permanent or indefinite, then the person’s tax home is the new location, so travel expenses are not deductible. Accountable plan reimbursements are now taxable to the employee.

The IRS defines “temporary” as a work assignment that’s expected to last a year or less. If a work assignment that started out as a temporary posting is extended to more than a year, then it becomes an indefinite assignment when the anticipated duration changes.

For example, Kimberly has been working for a company in Boston and is sent to Los Angeles for an eight-month project. Kimberly’s tax home is still Boston. Her employer reimburses her for her travel, lodging and meals under an accountable plan, and those reimbursements are tax-free.

However, seven months into the project, Kimberly’s employer decides to extend her posting in Los Angeles for another eight months, to a total of 15 months. At that point, Kimberly’s assignment becomes indefinite, so her tax home changes to Los Angeles. If her employer continues to reimburse her for living expenses, even if it’s done under an accountable plan, those reimbursements are now taxable.

This only scratches the surface of the tangled web that results when people live and work in multiple locations. Depending on the states involved, your clients may also have state tax issues. IRS Publication 463 , Travel, Gift, and Car Expenses , is a good resource, so be sure to check it out if you have clients in this situation.

Editor’s note: This article was published on the Firm of the Future blog .

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Liz spent 15 years working as an accountant with a focus on tax work as well as working on audits, business valuation, and litigation support. Since 2018, she’s been a full-time freelance writer, and has written blog posts, case studies, white papers, web content, and books for accountants and bookkeepers around the world. Her current specialty is ghostwriting for thought leaders in accounting. More from Liz Farr, CPA

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Complete Guide to Reimbursing Employees for Travel Expenses

Published September 2, 2020 · Updated April 21, 2021

When an employee travels away from the office and incurs expenses, the company should reimburse them. Whether travelling across the world or just driving their car to a client’s location, getting the reimbursement right isn’t hard.

Keep reading to learn how to make proper employee reimbursements.

Accountable Plans

You’ll first need to decide if you will implement an accountable or nonaccountable plan. This is just as it sounds; either you’ll have employees be accountable for business expense reimbursements or not.

All businesses should have an expense reimbursement plan in writing. This includes corporations, sole proprietors, the self-employed, and non-profits. Non-profits should be extremely careful when reimbursing disqualified persons because nonaccountable plan reimbursements not properly approved or recorded can cause significant tax exposure to the charitable organization.

An accountable plan must follow the IRS guidelines for expense reimbursement. To qualify, the following rules must be met:

Expenses must be for business purposes.
Expenses must be adequately reported to the company in reasonable time.
Any excess reimbursement or allowance must be returned in a reasonable amount of time.

Any expense that doesn’t meet these three criteria is considered a reimbursement under a nonaccountable plan.

This distinction between these two types of plans is important because accountable plan reimbursements are not taxable to the employee, whereas nonaccountable plans are taxable.

Business Purpose

Expenses incurred as an employee while completing work for an employer have a business purpose. Examples include things like registration fees for a conference, taxi rides to the airport for a business trip, or meals while away on a business trip.

If however, an employer reimburses an employee for dinner when the employee works late, this does not qualify as a business purpose. This reimbursement would be taxable to the employee because it was made under a nonaccountable plan.

Reporting in a Reasonable Time

While what is considered a reasonable amount of time is subjective, the general rule is that all reimbursable expenses must be submitted within 60 days of when they were incurred.

Adequate reporting involves providing a record, like an expense report, of all expenses incurred and providing evidence, like receipts, to support the expenses.

Excess Reimbursement

If an employee receives a travel advance to cover travel expenses but spends less than the advance, the difference is an excess reimbursement and must be returned to the employer to not be taxable. If the excess isn’t returned in a reasonable amount of time, it’s taxable.

A reasonable period of time in this instance is generally deemed to be within 120 days of when the expense was incurred.

With a travel advance, employees should submit an expense report and receipts to substantiate all expenses.

Mileage and Business Use of Personal Vehicle

When an employee uses their personal vehicle for company business, you’ll need to reimburse them. You have three options.

Standard mileage rate
Actual costs
Monthly allowance

Standard Mileage Rate

If you use the standard mileage rate, it is 57.5 cents per mile for 2020.

You can pay more, but the IRS’ safe-harbor threshold of 57.5 cents per mile will allow you a tax deduction without having to substantiate the rate.

Note that the IRS typically updates rates in December. So, you can expect to see the 2021 rate announced in December 2020. IRS 2021 Mileage Rates are here.

IRS Standard Mileage Rates 2020

Actual Costs

Instead of using the standard rate, you can reimburse employees for actual expenses.

The employee will sum up all the costs of owning the vehicle including everything from fuel, maintenance, tolls, registration, and insurance. And based upon the percentage of business miles driven, that portion of the total actual costs is reimbursed.

Monthly Allowance

Using the monthly allowance method is relatively easy. Each month you provide a set dollar amount to the employee.

If you require the employee to provide a mileage log at the end of the month, this will determine if any part of the allowance is taxable. If no mileage log is required, the entire allowance is taxable under an unaccountable plan.

If a mileage log is provided and the employee drove less than expected, they should return the excess allowance within 30 days. If they don’t, the excess becomes taxable to them.

An employee’s commute from their home to their normal place of business is not a reimbursable expense. Any business miles driven in excess of the commute miles is reimbursable.

For example, an employee’s normal round-trip commute is 20 miles. On Fridays, the employee works on-site at a client’s office that is 30 miles away from the employee’s home. So, the employee drives 60 miles round-trip on Fridays. Since this is longer than he would drive if he commuted to the office, you’ll want to reimburse the employee for 40 miles (60 miles – 20 miles).

Mileage Logs

Employees should keep mileage logs when using a personal vehicle for business use. The log should include:

Employee’s name
Description of vehicle
Date of business use
Purpose of business use
Starting mileage on odometer
Ending mileage on odometer
Approval authorization

Here’s an example of a mileage log using Microsoft Excel.

Mileage log and expense report – employee reimbursement

Note that in this example, the employee drove from the office to a client and then back to the office. Therefore, there is no need to deduct commuting mileage.

But suppose, like in our example from above, that on Fridays the employee drives from home to the client’s location and back home. His mileage log would look like this:

Mileage log and expense report example – employee reimbursement

But what if in this example, the drive to the client’s office from the employee’s home was shorter than his regular commute? In this case there is nothing to reimburse and the employee enjoys the benefit of less driving.

What would happen if this same employee didn’t normally work on Fridays or he always worked from home on Fridays? Then the entire drive to the client’s office would be reimbursable since the employee’s normal work schedule didn’t require him to commute on Fridays.

Many employees will forget to deduct their normal commute from mileage reimbursement requests. You’ll want to remind them.

Direct Expense Reimbursement of Travel Expenses

For employees who travel frequently, providing them with a company credit card is ideal. But for those times when an employee must use their own money for business expenses, you’ll want to reimburse employees quickly.

For easy recordkeeping, have employees complete expense reports when seeking reimbursements. Like the mileage log, it will detail who incurred the expense and when, what it was for, and the amount.

You can reimburse your employees with cash; however best practices would be to pay with check or some other trackable means, like ACH.

Here’s an example of an easy expense report in Excel.

Travel expense report - employee reimbursement

Travel expense report example – employee reimbursement

For each expense, the employee should include receipts to support the amounts requested.

Receipts for purchases should contain the amount, date, place, and a brief description of the expense.

For example, hotel receipts should include:

The name and location of the hotel.
The dates stayed.
Separate amounts for charges (i.e. lodging, meals, or food).

Restaurant and meal receipts should include:

The name and location of the restaurant.
The names of people in attendance.
The date and amount of the meal.

You may choose to reimburse employees for meal tips. Be sure to have a clear policy of what will be reimbursed and what will not. For example, you’ll reimburse up to 20% for tips. Anything above that will not be reimbursed.

You’ll also need to consider your policy for lost receipts. You can still reimburse but have the employee fill out a missing receipt form to document the expense.

In lieu of direct expense reimbursement, consider using a per diem.

A per diem provides the employee with a specified dollar amount per day to use on meals, snacks, lodging, or other miscellaneous purchases. Larger expenses like airfare would be paid using the direct expense reimbursement method or paid for directly by the company.

Per diems should be prorated for partial days of travel. Acceptable methods include the ¾’s method or any other method you choose that is reasonable. The ¾’s method adds ¾ of a daily per diem rate on departure days and another ¾’s on return days.

The IRS sets per diem rates for cities and metropolitan areas. More expensive locales have higher daily rates than cheaper cities. For example, the daily rate for high cost cities like San Francisco, Vail, Colorado, and Nashville, Tennessee is $297. And many cities are designated high cost for only portions of the year. Miami and Park City, Utah are considered high cost only from December 1 – March 31.

And if you’re not in a high cost city, the daily rate is $200. These per diem rates are often updated each year. So you’ll always want to check for the current rates.

For example, Dave is travelling to Seattle for business. Seattle is a high cost locale. He’s leaving on Monday and returning on Thursday. Seattle’s maximum per diem rate is $297 per day. Dave will receive $222.75 ($297 x ¾) for Monday and Thursday and the full $297 for Tuesday and Wednesday.

Per diems are not taxable income to your employee if you use the IRS rates and your employee provides an expense report with receipts. However, using higher rates will create taxable income for the amount above the federal rate. And not submitting an expense report and receipts will make the entire per diem taxable because you’ll have an unaccountable plan and your company will not have the required receipts to support the tax deduction.

If your business operates in the transportation sector (i.e. shipping, trucking, or rail, etc…), it’s important to note that there are different per diem limits and rules you must follow.

Entertainment Expenses

With the 2017 Tax Cuts and Jobs Act, entertainment expenses are no longer tax deductible for companies.

As an employer, you may still reimburse your employees for entertainment expenses; however, these reimbursements will need to be segregated so that they are not included on your tax return. Examples of entertainment expenses include tickets to entertain clients at sporting events or country club fees for golf memberships.

What documentation you require for entertainment reimbursements is up to you but best practices suggest following the same requirements for travel or mileage reimbursements.

Commingling

If travel or meals involve both a business and personal aspect, only the portion of the expense that is business related is reimbursable. Expense reports and receipts should indicate whether there are any personal expenses.

For example, an employee makes a business trip to California from Georgia and elects to stay two days after business is finished for a mini-vacation. Best practices would have the employee check out of his hotel room and check back in using his personal credit card to pay the hotel bill for his extended stay. This way he has two different receipts; one for business and one for pleasure. However, if he doesn’t do that and the entire hotel stay is charged on the same receipt, you’ll need to back out the charges related to his personal stay.

None of this information should be taken as legal or financial advice, nor should it deter you from seeking the assistance of a licensed attorney, accountant, or financial services professional. But if you want to make sure your company’s policies for employee reimbursements are consistent with best practices, implementing these policies is a great place to start!

Tags: Business Use of Personal Vehicle Commingling Direct Expense Reimbursement employee Commuting reimbursement Employee Expense Reimbursement employee Monthly Allowance employees reimbursements entertainment expenses Excess Reimbursement Expense Reimbursement IRS Accountable Plans IRS Expense Reimbursement Mileage log and expense report Mileage Logs mileage on odometer Per Diem reimbursed expenses Reimbursing Employees Standard Mileage Rate travel expenses

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Travel Expense Reimbursement – All You Need to Know

Traveling for business can be exciting and rewarding, but it comes with its challenges, especially when it comes to managing travel expenses. Business travelers often face various expenses like airfare, hotel stays, meals, and transportation. These expenses can add up quickly and become a burden if not reimbursed promptly.

Similarly, for travel managers and finance departments, managing these expenses and receipts can be time-consuming and tedious.

In this blog, we’ll discuss the travel expense reimbursement process, covering different types of expenses, their importance, and best practices.

What is Travel Expense Reimbursement?

Travel expense reimbursement is the process where a company repays its employees for expenses they incur while traveling for work. These expenses typically include costs for transportation, lodging, meals, and other related expenses.

Employees are usually required to submit a detailed report of their expenses, including receipts, to the company’s finance department or travel manager. The company then reviews these reports and reimburses the employees for the approved expenses.

Reimbursement is important because it ensures that employees are not out of pocket for expenses related to their work duties. It also helps companies manage their travel budgets effectively by tracking and controlling expenses. Proper reimbursement processes can improve employee satisfaction and ensure compliance with company policies and tax regulations.

What are the Different Categories of Travel Expenses?

During the travel expense reimbursement process, traveling employees, travel managers, and finance departments need to understand the different types of travel expenses:

1. Transportation Expenses

These expenses include the money spent by employees on transportation to their business trip destinations. This can include the cost of flights, cab fares, train tickets, or mileage if employees use their vehicles. For mileage, companies often follow the mileage reimbursement policy, which sets a standard rate per mile driven for business purposes.

2. Accommodation Expenses

Accommodation expenses refer to the costs employees incur for arranging their stays during a business trip. This can include charges for hotel rooms, resorts, lodges, Airbnb rentals, and other forms of lodging. Reimbursement for accommodation is typically based on the company’s travel budget and varies depending on the type and duration of the stay.

3. Client Entertainment and Meals

These expenses encompass the costs incurred by employees to entertain or engage with clients or prospective clients for business purposes. This can include expenses such as taking clients out for sightseeing, hosting them at live events like sporting events or concerts, and covering the cost of meals and refreshments during these activities. Employees who incur client entertainment and meal expenses are generally eligible for reimbursement.

4. Incidental Expenses

Incidental expenses are nominal costs that employees may incur in addition to major expenses while using certain services during their business trips. These can include expenses such as room service, laundry, and tips to service staff. Companies typically reimburse employees for incidental expenses upon their return from the business trip, provided they are within the company’s reimbursement policy limits.

Understanding these different types of travel expenses is essential to accurately reimburse employees and manage travel budgets effectively.

Why is the Travel Expense Reimbursement Process Important?

The travel expense reimbursement process is important for several reasons:

Record-keeping: It helps maintain accurate records of all expenses incurred during business travel, which is essential for tax audits and regulatory compliance.
Cost control: By setting reimbursement limits and requiring receipts, the process helps control costs and prevents overspending.
Policy compliance: It ensures that employees adhere to company policies and regulations regarding travel and expense management , reducing the risk of non-compliance and legal issues.
Employee satisfaction: A smooth reimbursement process boosts employee morale by ensuring they are reimbursed promptly and feel valued.

A well-managed travel expense reimbursement process is vital for effective business travel management.

What is a Travel Expense Reimbursement Policy?

A travel expense reimbursement policy is a document that outlines the rules and guidelines for reimbursing employees for business-related travel expenses. It includes details from pre-travel planning to settling reimbursable amounts. The policy specifies which travel expenses are eligible for reimbursement and which are not.

It also sets limits on the amount the company will cover for certain expenses. Additionally, the policy details the procedures for submitting expense reports and obtaining approvals.

How to Create an Effective Travel Expense Reimbursement Policy

Creating a successful travel expense reimbursement policy involves a few key steps:

Simplicity: Make the policy easy to understand for all employees. This helps streamline the reimbursement process.
Clarity: Ensure that the policy is clear and easy to follow. Provide detailed instructions on how to submit expenses for reimbursement.
Organization: Keep the policy well-structured with clear sections. This makes it easier to update and make changes as needed.

By following these guidelines, you can create a travel expense reimbursement policy that is effective and easy for employees to follow.

What Should You Include in a Travel Expense Reimbursement Policy?

A well-defined policy helps employees understand what expenses are covered, and how to claim reimbursement and ensures compliance with company policies and tax regulations . When creating a travel expense reimbursement policy, consider the following:

1. Detailed Expense Categories

Break down expenses into categories like transportation, lodging, meals, and client entertainment. This clarity helps employees understand which expenses are eligible for reimbursement.

2. Eligible Expenses for Reimbursement

Provide a detailed list of expenses that are eligible for reimbursement. This typically includes costs like transportation, accommodation, meals, client gifts, and visa charges.

3. Expenses Not Eligible for Reimbursement

State expenses that will not be reimbursed, such as personal shopping or travel upgrades beyond the budgeted amount.

4. Tax Considerations for Expenses

Explain the tax implications of travel expenses and reimbursements, ensuring compliance with tax regulations. Differentiate between employee allowances and reimbursements for tax purposes.

5. Daily Budget Allocation (Per Diem)

Set daily allowances for each expense category to manage costs effectively. Communicate these rates to encourage employees to stay within budget.

6. Receipt and Documentation Requirements

Specify what receipts and documentation are necessary for reimbursement claims. This ensures that employees provide sufficient evidence of their expenses.

7. Reimbursement Process Details

Describe the process for submitting and processing reimbursement claims. Include information on who is responsible for approving and processing claims, as well as the timeline for reimbursement.

8. Fraud Prevention and Policy Compliance Measures

Outline policies and consequences for fraud attempts or violations of the reimbursement policy. This helps maintain integrity and adherence to the policy.

Step-by-Step Guide to Travel Expense Reimbursement Process

1. Pre-Travel Approval Process

Employees submit a detailed request for their upcoming travel, including destination, dates, purpose, and estimated expenses. The company provides a standardized form or system for employees to submit travel requests, which are then reviewed and approved.

2. Expense Guidelines and Policies Communication

Upon approval, employees receive clear guidelines on what expenses are reimbursable and the limits of the company’s reimbursement policy. The company ensures that employees understand the expense policy and have access to information about allowable expenses and reimbursement procedures .

3. Expense Documentation and Collection

During the trip, employees are required to keep and collect receipts for all expenses, including meals, transportation, accommodation, and any client-related activities. They organize and store these receipts to submit as part of the reimbursement claim.

4. Expense Report Preparation

After returning from the trip, employees compile all expense receipts and details into a comprehensive expense report. The report includes a breakdown of expenses by category, such as meals, lodging, transportation, and any other relevant expenses incurred during the trip.

5. Review and Approval Process

The finance department reviews each expense report to ensure that all expenses are legitimate, accurately documented, and compliant with company policies. Any discrepancies or questionable expenses are flagged and resolved before approval.

6. Reimbursement Processing

Once the expense report is approved, the finance department processes the reimbursement, typically adding it to the employee’s next paycheck or initiating a direct deposit. Reimbursements are calculated as per the approved expenses and the company’s reimbursement rates and policies.

7. Reconciliation and Reporting

The finance department reconciles the reimbursed expenses with the company’s accounting records to ensure accuracy and compliance. Detailed reports are generated to track travel expenses, provide insights for budget planning , and maintain accurate financial records.

What are the Roadblocks in the Travel Expense Reimbursement Process?

Challenges in travel expense reimbursement include:

Manual Processes: Using manual processes for expense reimbursement can lead to delays and errors. Passing expense reports through multiple hands increases the likelihood of mistakes or fraud, making the process inefficient.
Unclear Policies: If travel and expense policies are unclear or too complex, it can lead to confusion and delays in reimbursement. Simplifying policies helps employees understand the rules better and ensures compliance.
Complicated Workflows: Complex approval workflows can hinder the reimbursement process. Straightforward approval processes help ensure quick approvals and smooth progression of claims.

What are the Best Practices for a Smooth Travel Expense Reimbursement Process?

1. develop a comprehensive expense reimbursement policy.

Craft a detailed policy that is easy for employees to understand. Include clear guidelines on what expenses are eligible for reimbursement and how to submit claims. Specify any pre-approval requirements for certain expenses. A comprehensive policy reduces confusion and ensures compliance with company guidelines.

2. Enforce Timely Submission of Expense Reports

Establish deadlines for submitting expense reports and enforce them rigorously. Send reminders to employees as the deadline approaches. Timely submission of expense reports ensures that reimbursements are processed promptly, which contributes to employee satisfaction.

3. Verify Expense Legitimacy and Compliance

Regularly review expense reports to ensure they comply with company policies. Use expense management software to identify any duplicate or out-of-policy expenses. This helps prevent fraud and ensures that reimbursements are fair and accurate.

4. Set Clear Guidelines for Approval

Establish clear guidelines for approving expense reports, including who has the authority to approve expenses and what criteria should be used to evaluate them. This can help ensure consistency and fairness in the expense approval process .

5. Offer Open Communication

Keep employees informed about the reimbursement process through regular communication. Provide updates on policy changes and clarify any confusion regarding reimbursement procedures. Open communication fosters trust and transparency, leading to a smoother reimbursement process.

6. Provide Prompt Reimbursements

Process reimbursement requests promptly to demonstrate respect for employees’ time and efforts. Delays in reimbursement can lead to frustration and dissatisfaction among employees, so prioritize timely payments whenever possible.

7. Utilize a Centralized Expense Management System

Implement a centralized system for managing travel expenses. This system should allow employees to easily submit expense reports and track their reimbursement status. It should also provide managers with the tools to efficiently review and approve expenses. A centralized system improves efficiency and reduces the risk of errors.

Closing Thoughts

Implementing an effective and efficient travel expense reimbursement process is crucial for organizations to maintain accurate financial records, enhance employee satisfaction, and comply with tax regulations.

Leveraging technology, such as Peakflo’s Travel and Expense Management Solution , can streamline the process by implementing robust travel expense policies, ensuring policy compliance, and detecting fraudulent attempts.

By utilizing such tools, organizations can simplify the reimbursement process, reduce errors, and improve overall efficiency in managing travel expenses.

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Mastering Corporate Travel Policy: Best Practices for Creation and Implementation

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Employee Expense Reimbursement 101: What You Need to Know

December 30, 2021

Every business has expenses. Sometimes, however, it falls to the employee to shoulder those work-related costs using their own money, with the promise that they will receive reimbursement.

Such reimbursable expenses are often incurred during travel, at business lunches, to purchase necessary tools and supplies, or when an employee must use a personal cell phone for a work-related call, among other examples.

Some states, like California and Illinois, even have mandates requiring companies to pay back their employees for reasonable expenses like these.

Nonetheless, reimbursement from your employer isn’t as easy as simply holding your hand out for some cash — and not understanding expense reimbursement can have negative impacts. A poorly-managed expense reporting system is frustrating for the employee, and the misclassification of expenses can wreak havoc on a company’s accounting.

Even worse still, incorrect reporting by the employer can sometimes cause the employee to overpay payroll withholding taxes.

Therefore, many employees have specific questions about how reimbursement works. For example, what are the rules governing reimbursable expenses? Do employees need to report reimbursements as income or wages? And just what is an “Accountable Plan,” anyway?

In this post, I’ll provide answers to the above, as well as other questions related to employee expense reimbursement, such as:

What kinds of expenses should businesses reimburse?

Are reimbursements taxable for the employee?

Can expenses be reimbursed through payroll?
How do accountable and non-accountable plans work?

How do you report reimbursements?

To begin, let’s examine the following question in more detail.

What is expense reimbursement?

The expense reimbursement process enables an employer to pay funds back to an employee for business-related expenses they paid for with their own money. It is also an opportunity to create a policy that outlines procedures and sets clear expectations.

A good expense reimbursement policy clarifies which expenses are and are not covered and explains how the employee may go about requesting reimbursement and what documentation, such as receipts, they will need.

Additionally, a well-crafted policy can maximize tax benefits for both parties, the employer and the employee.

The Fair Labor Standards Act does not make employee expense reimbursement mandatory (although it does forbid an employee’s expenses to bring their wages lower than the applicable minimum wage or eat into their overtime wages). Nevertheless, it is considered customary and is common practice for businesses to cover certain expenses.

What should businesses cover?

To put it simply, employers should cover expenses necessary to the operation of the business or the employee’s ability to complete the duties and responsibilities of their job. However, what exactly that means for a given business specifically is open to interpretation.

For example, if an employee’s job requires travel, the employer may cover meals and lodging. Even entertainment expenses meet the criteria defined by IRS Publication 463 if these purchases can be shown to have a clear business purpose.

Gasoline and auto mileage costs related to using a personal vehicle to travel for work are often reimbursable, as are business phone calls. Some additional examples include:

Office expenses (copy and print services, etc.)
Conference and registration fees
Currency conversion fees
Public transportation
Laundry, dry-cleaning, suit-pressing during business trips longer than five days
Overnight delivery
Parking and tolls
Car rentals
Visa/passport fees

On the other hand, some examples of expenses your employer will most likely refuse to reimburse include:

Auto repairs
Baby-sitters
Baggage insurance
Barbers or hairdressers
Clothing or toiletries
Decorations for the office
In-flight headsets
Laundry services during business trips shorter than five days
Loss or theft of cash, property, baggage, or briefcases
Personal reading materials
Medical expenses
In-flight entertainment
Mini-bar alcoholic refreshments
Parking tickets, fines, traffic violations
Spa services

Generally speaking, employees are not required to report reimbursements as income or wages and therefore are not taxable. Nevertheless, there are some exceptions.

For example, if your employer provides you with a company car, but you use it for personal reasons, some of the costs may be taxable to you. Additionally, if you receive prizes in the form of goods or services, you must report them with your income at fair market value (FMV).

On the other hand, many categories of reimbursable expenses are nontaxable for the employee provided specific requirements are met. These include:

Educational reimbursements (up to $5,250/year)
Specific insurance premiums
Gifts with a minimal value or awards such as plaques and trophies
Meals or lodging on the worksite
Use of a company van for commuting
Additionally, up to $265 per month in transportation-related fringe benefits (like parking, vanpooling, or transit passes)

It’s worth noting that many of the above categories do come with specific guidelines that determine their taxability. It’s never a good idea to assume an expense reimbursement is nontaxable without consulting resources or experts.

Can expenses be reimbursed through payroll?

While the IRS does allow employers to reimburse employee expenses through payroll, some tax implications can come with doing it this way. For example, if the reimbursement is not made as part of an accountable plan, it will be taxable to the employee as wages.

In fact, any reimbursement payments made to an employee that are not under an accountable plan are taxable to the employee and subject to withholding.

This brings me to the next question…

What is an accountable plan?

An accountable plan is simply a formalized process by which an employee documents their expenses, submits a request for reimbursement, and returns any excess funds. If you’ve ever had to turn in a receipt or record an expense to receive a reimbursement, that’s an example of an accountable plan.

This kind of arrangement has benefits for both the employee and the employer. For the employee, it keeps their reimbursements nontaxable. Meanwhile, the employer can write the same expenses off on their business tax return.

While accountable plans are certainly the norm, some companies choose to forego one in favor of a nonaccountable plan. A company may choose this route for various reasons, such as a desire to minimize record-keeping. Under a nonaccountable plan, reimbursements count as wages and are taxable to the employee.

As mentioned above, reimbursements paid under an accountable plan are not considered taxable income, and therefore you do not need to report them to the IRS.

If an employer reimburses the expenses under a nonaccountable plan, the employer reports the reimbursement as taxable wages to the employee on Form W-2 and takes a wage expense deduction.

In either event, it does not fall to the employee to report expense reimbursements to the IRS.

In closing…

When an employee must cover work-related expenses with their own money, it can be helpful to know that their employer will reimburse them for their trouble. But a poor understanding of employee expense reimbursement can lead to unwanted tax implications.

By better understanding how reimbursement works, you can engage in your work-related expenses more confidently.

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Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting. Planning and preparation of GAAP and other basis financial statements. Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy. Filing quarterly and annual taxes. Audit support. General financial and planning advice. Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004. After a career of public accounting and general management, Jody knows the value of good financials. Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles. His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies. His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller. He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

What is mileage reimbursement?

Depending on how much you drive for business, mileage deduction or reimbursement can add up to significant savings Learn how self-employed people can deduct business-related miles driven from their taxable income.

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IRS mileage reimbursement policy

How to calculate your irs mileage deduction, requirements for irs mileage rate reimbursement, use reimbursement to your advantage, mileage reimbursement faqs.

For self-employed professionals, every mile traveled can represent both an expense and an opportunity. You can claim mileage reimbursement or a deduction from the Internal Revenue Service (IRS) for all business miles driven.

Whether you're a freelance consultant meeting clients across town, a real estate agent scouting properties, or a gig economy worker shuttling passengers, the miles you rack up on your vehicle are more than just a journey—they're potential deductions and reimbursements that can significantly impact your business’ bottom line.

A pizzeria owner calculates mileage for his taxes. Navigating the complexities of mileage reimbursement as a self-employed individual can be daunting.

Navigating the complexities of mileage reimbursement as a self-employed individual can be daunting. Unlike traditional employees who often have mileage reimbursement policies set by their employers, self-employed professionals must establish their own reimbursement policy and understand how to leverage IRS tax laws to maximize their deductions and reimbursements.

From understanding which miles are deductible, what forms you need to file, and how to leverage technology for seamless tracking, we'll equip you with the knowledge and tools necessary to navigate this crucial aspect of self-employment with confidence.

Mileage reimbursement, also known as mileage deduction, allows self-employed individuals to deduct the cost of business-related driving from their taxable income. Each mile you drive for business can be deducted from your taxes at the end of the year.

Typically, a reimbursement or deduction for mileage is calculated based on the number of miles driven for business purposes, using a predetermined rate per mile set by the IRS.

Mileage reimbursement serves as a means to fairly compensate individuals for the expenses incurred while using their personal vehicles for work-related activities, thereby helping to offset the financial burden of business-related travel. For self-employed people, these miles driven are considered one of many business expenses.

Eligible miles:

Client visits : Driving to meet clients or potential customers
Business errands : Picking up supplies, going to the post office, or any other errand for your business
Travel to a temporary workspace : Driving between one workplace and another or from home to a temporary workplace
Business events : Travel to conferences, workshops, or any other business-related events

Non-eligible miles:

Commute : Drive from home to your regular workplace and from your workplace back home

Personal : Any miles incurred for non-business activities are not deductible

Key takeaways

This guide dives deep into the requirements and technical details of receiving reimbursement for business miles. You can expect an understanding of:

What mileage reimbursement is
How self-employed people can deduct business-related miles driven from their taxable income
How you can choose between the standard and actual mileage deduction
Depending on how much you drive for business, mileage deduction or reimbursement can add up to significant savings
The 2024 IRS mileage deduction is 67 cents per mile driven

Who is this guide for?

This guide focuses on mileage reimbursement policy for self-employed people.

Self-employed people who are eligible for mileage deduction are:

Small business owners who report their income on Schedule C
Freelancers
Independent contractors
Delivery and ride-share drivers (independent contractors)
Real estate agents
Truck drivers

In brief, we will cover mileage reimbursement for traditional employees, active duty military, and miles incurred for charitable organizations.

Who is mileage reimbursement for, and why is it important?

Mileage reimbursement is for anyone who uses a vehicle for business purposes. It can be for employed and self-employed people.

This guide primarily focuses on self-employed individuals and the requirements they must follow to receive mileage reimbursement or deduction from the IRS.

In addition to business mileage reimbursement payments, you can receive mileage reimbursement for some personal miles. Those include:

Mileage related to medical appointments
Miles driven while volunteering for a non-profit

The IRS mileage reimbursement policy is that self-employed people can deduct business-related miles driven from their taxable income. The IRS lays out two different methods for calculating how much you can deduct based on eligible miles driven.

Federal mileage reimbursement guidelines

The IRS offers two different ways to calculate the amount of deduction you’re eligible for. You can choose between the standard and actual mileage rate deductions.

How you use your car will determine which reimbursement method you’ll want to use. If you’re eligible for either method, you may want to calculate which will allow you to deduct more and choose that method.

The IRS updates the mileage rate each year . In 2024, the deduction rate for self-employed and business miles is 67 cents per mile driven.

This rate is intended to take into account depreciation or wear and tear on the vehicle, the cost of gas, and the expense of regular maintenance.

Who’s eligible for mileage reimbursement?

If you are self-employed and sometimes use your vehicle for business purposes, you’re eligible for federal mileage reimbursement.

There are a few stipulations on who is eligible:

You must own or lease your vehicle
You must be self-employed. This includes small business owners, delivery and ride-share drivers, independent contractors, sales representatives, real estate agents, and truck drivers
Only business-related miles are eligible for mileage deduction. Personal travel and travel from home to work (your commute) are not eligible for deduction.

Those who are not eligible for business mileage reimbursement include:

People who are not self-employed
People who use more than four cars at the same time can’t use the standard deduction (If you have five employees, all of whom will be driving at 9 a.m. on Monday, then you’ll need to use the actual deduction method.)

An employer can offer mileage reimbursement to employees who drive as part of their job duties. If an employees uses their personal vehicles for business purposes, you can reimburse employees 67 cents per mile on the employee’s paycheck.

To pay employees, it’s as simple as asking employees to track their mileage and then provide mileage reimbursement.

Charity, medical, and armed forces

In addition to the above mileage reimbursements, some people are eligible for reimbursement for medical or moving purposes.

Members of the armed forces are eligible for reimbursement for expenses incurred while moving. This deduction is only for qualified active duty members.

The mileage reimbursement rate for medical and moving purposes is 22 cents per mile driven.

Mileage reimbursement requirements: What’s covered and what’s not

In short, most miles driven for business use are eligible for reimbursement or deduction under federal law. There are a few exceptions to this rule.

In addition to receiving a reimbursement for business mileage, you can also deduct other vehicle-related expenses. This applies to people who choose the actual reimbursement rate. If you choose the standard rate deduction, that has built in the assumed cost of maintenance, gas, and vehicle depreciation to the deduction rate.

For example, if you use your car for a mix of business and personal and your business use is approximately 40 percent of all use, you can deduct 40 percent of your other vehicle-related expenses. This includes gas, car loan interest, and maintenance. You should maintain receipts for all vehicle expenses in case of an IRS audit.

Eligible miles :

Business errands : Picking up supplies, going to the post office, or any other errand for business purposes
Travel to temporary workspace : Driving between one workplace and another or from home to a temporary workplace

Non-eligible miles :

Mileage deduction if you work from home

Many self-employed people choose to work from home. If you work from home, the deduction rules change slightly. Generally, mileage from your commute when driving from home to work is not deductible. This changes when your home is also your primary place of business.

If your home is the primary place where you work, you can deduct mileage when driving to and from home for business-related purposes. This is no longer considered a commute.

How much can you deduct from your taxes for mileage reimbursement?

The IRS has no upper limit. You can deduct as many business miles as possible; there’s no cap.

If you are deducting a high amount of miles, be sure to keep clear records as the IRS may want to review those records to ensure all claimed miles were actually eligible for a deduction.

How much, on average, do people claim on their taxes for mileage reimbursements?

The amount of IRS mileage deduction claimed varies greatly from person to person. There is no upper limit to how many miles you can claim for deduction or reimbursement.

A freelancer who primarily works from home and meets with clients virtually will have only a few business miles a year to deduct. On the other hand, an independent contractor who works as a ride-share or delivery driver could have thousands of eligible business miles to deduct in a year. Mileage reimbursement policy can offer a significant tax break for someone who drives a lot for work.

Are there other vehicle-related deductions?

But, you’re only eligible for other vehicle-related deductions if you choose the actual mileage deduction method. If you choose the standard deduction, your additional deductions are built in. As well, you must own or lease your vehicle to be eligible.

If you’re using the actual mileage reimbursement, you can deduct the actual costs of depreciation, lease payments, maintenance and repairs, gas, oil, insurance, and vehicle registration fees.

According to the IRS mileage reimbursement policy, if you’re using the actual reimbursement method, you can deduct the percentage of expenses of your car that’s equal to your use.

You can also deduct the depreciation value of your car. To calculate depreciation, you’d use the Modified Accelerated Cost Recovery System (MACRS) method. This method is used to depreciate any car placed in service post-1986. This applies only to individuals who have always used the actual reimbursement method.

If you have used the standard mileage rate for deduction in previous years, then you must use a straight-line depreciation method to calculate your depreciation deduction.

You can also deduct the cost of parking fees and tolls. These costs are deductible, but won’t be calculated in the actual mileage reimbursement. Fees and tolls are a separate deduction. As well, the fee to park at your place of work is non-deductible.

If you’re self-employed and use your vehicle for business purposes at least some of the time, you’re eligible to deduct the mileage rates from your year-end taxes.

There are two ways to calculate the mileage tax deduction for self-employed people.

Actual mileage reimbursement
Standard mileage reimbursement

Your eligibility for these deductions depends upon:

If you’re self-employed
If you use your vehicle for business purposes
If you own or lease your car
Which method you used the previous year

If you are eligible for both methods, it’s recommended that you calculate the deduction both ways to figure out which method will give you a larger deduction.

Methods of mileage reimbursement calculation

There are two methods of reimbursement offered by the IRS to people who are self-employed and use their owned or leased vehicle for business purposes.

The two different ways to calculate your reimbursement are actual mileage reimbursement and standard mileage reimbursement.

Standard mileage reimbursement rate

The IRS standard mileage rate is a set rate that’s defined each year by the IRS. Self-employed people receive a mileage deduction of a set number of cents per business mile driven.

The standard mileage reimbursement rate accounts for the depreciation and maintenance costs of operating your vehicle in the calculation. This means that those additional expenses are no longer deductible.

The standard mileage reimbursement rate in 2024 is 67 cents per mile driven.

Self-employed people who use their vehicle for some business-related purposes will receive a deduction of 67 cents for every mile they drive for business on their year-end taxes.

The standard IRS mileage rate is for self-employed people who own or lease their vehicles. Generally, this deduction is chosen by those who use their vehicle sporadically for business.

If you meet the below criteria, you cannot use the standard rate mileage reimbursement:

Operate five or more cars at the same time
Have claimed a depreciation deduction other than straight-line
Have claimed a Section 179 deduction on your car
Have claimed actual expenses in previous years

An important note: If you’re planning to use the optional standard mileage rate deduction, you must opt for this from the first year your car is used for business. If you lease your vehicle, you must use the standard mile rate reimbursement for the entire lease period, including renewals.

You cannot choose the actual expenses option and then switch to the standard option the next year. Though, the reverse is allowed.

Actual expenses mileage reimbursement method

As an alternative to the standard, you can choose the actual expense mileage reimbursement rate.

The actual expense mileage reimbursement method allows you to deduct the actual cost of operating and owning the car.

If you use your car solely for business purposes, this means you can receive tax deductions for expenses. If you use your car for a mix of personal and business use, then you can deduct a percentage of expenses proportional to your business use of the car.

For example, if you drive your car for business 25 percent of the time, you can deduct 25 percent of all expenses.

Expenses included for deduction in the actual expenses mileage reimbursement method:

Lease payments or depreciation
Maintenance
Registration fees
Garage space rental fee
Trailer rental cost (if hauling tools)

If you’ve used the actual expense method in previous years, you may not be able to switch to the standard mileage rate deduction. Using any of these three types of depreciation will disqualify you from switching:

Section 179 deduction
Depreciation deduction
Special depreciation allowance

Tips to choose the right reimbursement method for you

Choosing the right IRS mileage reimbursement method might not be an obvious choice

Here are a few tips to help you decide which method is right for you and your business:

Calculate your deduction using both methods. Choose the method that will offer a higher deduction.
If your car is more costly to operate and maintain than average, consider the actual expense method.
If you own a new or expensive car, the actual expense method is likely to offer a higher deduction for you.
If you don’t drive often or much for business, the standard deduction requires keeping track of fewer receipts and takes less time to calculate.
If you drive a fuel-efficient or hybrid vehicle with low maintenance cost, you may receive more in reimbursement from the standard deduction than the actual deduction.
Ask for advice from a tax professional.

Switching between actual and standard mileage reimbursement

It’s very important to note that you may not be eligible to switch between the two types of mileage reimbursement, depending on which type of reimbursement you chose in the past. Which reimbursement you’re eligible for also depends upon whether you lease or own your vehicle.

If you own your vehicle

If you chose the actual expense method the first year it was available to you, then you will not be eligible to switch to using the standard mileage rate in any following year for that vehicle.

If you chose the standard mileage rate method in the first year, you may choose between the two methods in the following tax years.

If you think you might want to switch how you calculate mileage reimbursement in future years, be aware of which depreciation calculation you choose. This may disqualify you from the standard mileage rate method.

If you choose any of these three depreciation calculations, you’re no longer eligible for the standard rate reimbursement method:

If you lease your vehicle

If you want to use the standard rate mileage deduction for a leased car, you must do so throughout the entire lease period. This includes all lease extensions.

There are several requirements for mileage reimbursement documentation. The IRS needs to see certain things in order to grant your deduction.

Mileage deduction documentation

According to the IRS , “the law requires that you substantiate your expenses by adequate records or by sufficient evidence to support your own statement.”

You might need different records depending on the reimbursement method you choose. The actual method requires more documentation as it allows you to deduct more business-related expenses.

Records you might need to keep:

Receipts for all car maintenance
Proof of purchase
Proof of lease or ownership
Log of miles driven

What’s required on mileage reimbursement documentation logs?

A mileage reimbursement log tracks the miles you drive for your business. These records should be kept as they happen or soon after. The IRS considers the log to be timely if it’s updated at least weekly.

The log should include:

Destination

Your log should also include your mileage at the beginning and the end of the year to show your total mileage.

How to track mileage

There are a number of different methods you might use to track your mileage. Whichever method you choose, your records should be timely and accurate.

First, you must log your mileage at the beginning and end of the year. This shows the total mileage that was driven.

Next, you’ll want to keep a log of all personal trips and business mileage driven. You can keep your log in a notebook, a spreadsheet, or use a tracking app.

There are a number of apps on the market for tracking business miles. You can find standalone mile-tracking apps or use one that’s built into your accounting software.

If you didn’t track your miles this year but want to deduct them, you may be able to go back through your timeline on your phone’s map app, which may automatically track your location.

Receipts and records

If you’re using the actual method for mileage reimbursements, you will also need to keep receipts for all expenses related to your vehicle. You will be able to deduct all or a portion of those expenses on your year-end taxes.

Mileage reimbursement tax procedures

If you’re preparing your own taxes as a business, it’s important to know where to file for your mileage reimbursement.

Sole proprietors will deduct car expenses on Schedule C, Form 1040.

In addition to reimbursement for business mileage, you can also receive a deduction for other miles driven. You might claim a deduction for:

Miles driven for charity: 14 cents per mile, 2024
Miles driven for medical reasons: 22 cents per mile, 2024

Understanding reimbursement policy is paramount for self-employed professionals seeking to optimize their finances and accurately account for the costs associated with business-related travel.

With careful attention to detail and proactive planning, self-employed professionals can harness the benefits of mileage reimbursement to enhance their financial well-being and drive success in their entrepreneurial endeavors.

Is gas included in mileage reimbursement/tax deductions?

If you use the standard mileage rate for reimbursements or deductions, you cannot deduct expenses for gas. That being said, the cost of maintaining a vehicle (including gas) is built into the calculation for how the IRS sets the per-mile deduction.

In 2024, the per-mile deduction rate for self-employed professionals is 67 cents.

If you choose to use the actual rate, you can deduct the price of gas (among other expenses) used for business driving.

How does the IRS calculate mileage reimbursement?

The IRS calculates the rate for the standard mileage reimbursement by looking at the fixed and variable automobile operating costs.

The IRS reevaluates the standard mileage reimbursement rate each year and new rates are issued as the costs of maintaining and owning a vehicle rise or fall.

The standard mileage deduction rate applies to gasoline and diesel-powered vehicles, as well as electric and hybrid vehicles.

What would I do if I didn’t track my mileage this year?

The IRS requires timely and accurate records to be kept in order to file for a mileage deduction. Timely is considered weekly.

If you forgot to track your mileage this year, you may be able to prove a claim with:

A statement that includes specific information about the untracked miles
Provide sufficient supporting evidence through other sources

If you regularly travel with your phone and have location tracking on, you may be able to recreate the business miles you drove through a map timeline.

Can I deduct miles to and from work as an independent contractor?

You cannot deduct your commuting miles, which is defined as your drive from home to work and back.

But, if your home is your primary workplace, you can deduct miles from your home (place of work) to temporary work sites, meetings, or other business-related purposes.

How You Set Up a Mileage Expense Policy

You can set up a mileage expense policy to allow employees to claim mileage reimbursement for travel expenses incurred by using their personal vehicles for business activities. In most countries, the central government determines the mileage reimbursement rates.

Based on government mileage regulations and your company policy, you can set up a mileage expense policy by defining:

Mileage eligibility rules

Mileage rate determinants

Mileage add-on rates

The application automatically calculates the mileage reimbursement based on your definition of the eligibility rules, rates determinants, and add-on rates.

In the Setup and Maintenance work area, use the following:

Offering: Financials

Functional Area: Expenses

Task: Manage Policies by Expense Category

On the Manage Policies by Expense Category page, click the Create Policy choice list and select Mileage . The create Mileage Policy page appears.

Mileage Eligibility Rules

In the Mileage Eligibility Rules section, you specify the rules that determine whether employees can claim mileage reimbursement for using their personal or company provided vehicles. The following table lists the mileage eligibility rules and their descriptions.

Mileage Rate Determinants

In the Mileage Rate Determinants section, you specify the determinants on which the mileage reimbursement policy is based. The following table lists selected mileage rate determinants and their descriptions.

Mileage Add-On Rates

In the Add-On Rates section, your company can add passenger rates and company-specific rates for inclusion in the mileage reimbursement policy. The following table lists additional rate types and their descriptions.

After you finish setting up the mileage expense policy, you must:

Complete the mileage rate spreadsheet and load the spreadsheet to the application. Or, complete the Create Rates dialog box, depending on the complexity of the policy.

Activate the mileage reimbursement policy.

Set up cumulative mileage determinants when applicable.

Assign the mileage reimbursement policy to expense types.

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