Federal tax law allows you to claim a deduction for the business mileage if you're not reimbursed for the expense. You have two optional methods to calculate your mileage expenses when using a personal vehicle for work purposes. Your deduction is based on your business use percentage, i. The second method is to multiply the miles you drive for work by the Internal Revenue Service standard mileage rate, which changes every year and sometimes twice a year.
The total of all expenses you report in this category must be reduced by two percent of your adjusted gross income, or AGI. The detail of your expenses will be shown on either Form or EZ, which is used to report employee business expenses.
TurboTax will fill in the right forms for you. If your employer has a policy that covers reimbursements or allowances for mileage, you need to determine whether the policy is an accountable plan before claiming any deduction. Your Form will show your expenses and the amount of employer reimbursement; the difference between the two will be your deduction.
As a result, the reimbursements will be reported on your tax return in the same way as your wages. Although you will pay income tax on your reimbursements, you can deduct all mileage expenses despite receiving reimbursements. Section of the Internal Revenue Code provides exclusions but only for meals or lodging furnished in kind, in other words, when the employer actually provides the lodging.
Cash allowances or reimbursements are not eligible for this exclusion. Remember that, just as in the case of the day meals, Federal law takes precedence over a state statute, employment, or union contracts, in determining the Federal tax liability for furnished lodging. The actual facts and circumstances and the requirements are outlined in Internal Revenue Code which determine the liability for Federal income tax, social security and Medicare taxes.
You know Wendy; many of us have heard or read that exercise is good for us. And as an employer you may even be considering offering athletic club memberships to your employees. This may sound like a great idea, but before you do it, or in case you already do offer this benefit, let's talk about the tax implications. Under Internal Revenue Code section j 4 , the value of any on-premises athletic facility provided by an employer is not taxable to the employees. There are a few factors that determine if this fringe benefit is not taxable.
You may have notice that I said "on-premise athletic facility". The term "on-premises athletic facility" is any gym or athletic facility:. The athletic facility does not need to be on the employer's business premises.
However, the facility must be on property owned and operated by the employer and it cannot be a facility for residential use, such as a resort. The facility could include gyms, swimming pools, tennis courts, golf courses and running or bicycle paths.
The exclusion for athletic facilities does not apply to any membership in an athletic facility including health clubs or country clubs unless the facility is owned or leased and operated by the employer and used substantially by the employer's employees, spouses and dependents.
Therefore, if the employer is paying for employees' membership to the local gym or Y and neither are owned and operated by the employer the membership is considered a taxable fringe benefit, the value of which should be included in the employee's W However, if the employer has a work out facility on its property, and it is owned and operated by the employer and substantially all of the use is by employees then the fringe benefit would tax-free. Probably one of the most common reimbursements or allowances an employer makes to an employee is for the employee's vehicle usage.
This is generally paid as either a flat allowance amount or as a "cents per mile" reimbursement. And to answer one of the audiences questions, the reimbursement could also be at the actual cost incurred by the employee with receipts submitted under an accountable plan.
In general, if a government employer reimburses auto expenses under an accountable plan, the reimbursement is not taxable to the employee. Additionally, the expense would not be deductible by the employee on their personal tax return since the reimbursement was not included in the employee's income. The employee is required to follow the accountable rules of providing the date, mileage, and business purpose for the mileage they submit.
Allowable Mileage-rate reimbursements for business travel are excludable from the wages of the employee if paid at or below the standard Federal mileage rate. The employee must follow the accountable plan rules and account for the business miles driven.
If the employer's reimbursement rate exceeds the standard rate, the excess amount is taxable to the employee as regular wages. When there is an excess reimbursement, the nontaxable and taxable amounts are reported on form W-2 with:.
In other words, the taxable portion is reported the same as any other compensation in boxes 1, 3, and 5 with the withholding reported in boxes 2, 4 and 6. If a government employer reimburses an employee's mileage under an accountable plan substantiating the business mileage, and the reimbursement is at or below the Federal mileage rate, then:. If reimbursements are not paid under an accountable plan, or the reimbursement exceeds the allowable amounts , the money, or a portion of it, is taxable as wages.
As was mentioned earlier, the government agency has the option of reimbursing the employee for actual expenses, such as fuel cost. These reimbursements are excludable from the employee's compensation, under an accountable plan. The employee must document expenses and the connection to the business. Expenses that are personal in nature like commuting are never excludable and reimbursement for such personal expenses should be included in the employee's taxable wages.
Regardless of how the reimbursement is calculated, in order for it to be considered paid under the accountable plan rules, the employee must provide substantiation to the employer. The travel substantiation rules require the employee to record. The regulations require that mileage be recorded at or near the time the mileage is incurred.
As we mentioned, reimbursements for non-business travel, including commuting, is taxable, even if paid at or below, the Federal mileage rate and calculated on the same documentation as an accountable plan. We have mentioned Commuting multiple times today, so let me remind you that commuting can occur for many different reasons. Commuting is personal travel between the residence and the place of business and is considered non-business travel or personal.
As a reminder, Commuting can be at the request of the employer or solely initiated by the employee. For example, if you have an employee that normally works Monday through Friday and goes into the office on the weekend.
This is still personal commuting , regardless of whether it is required by the employer or initiated by the employee. Here is another question from the audience: "If an employee takes a taxi from their home to work because they have large or heavy project materials that they are bringing with them to work for a presentation, or conference that is business related, is that taxable or non-taxable?
Under the commuting rules that we have described, the reimbursement for the taxi would be a taxable fringe benefit and subject to employment taxes because the employee is considered to be commuting. And as a sidebar, if the employees does not submit a claim for business mileage reimbursement, they can not claim the expenses on their personal tax return.
John, that was an excellent description on the business use of an employees personal vehicle. Now I would like to cover government employees using government owned vehicle. You should know when an employer provides a vehicle to an employee solely for business purposes there are no tax consequences or W-2 reporting required and the business use is treated as a working condition fringe benefit.
However, employees are still required to keep trip records. Remember business use does not include commuting. Employees need to maintain records to substantiate that all vehicle use was for business purposes. If an employer-provided vehicle is used for both business and personal use, the substantiated business use is not taxable to the employee however the personal use is considered a fringe benefit and taxable as wages.
There are a couple of options for the government and the employee in this situation. If the employee fully substantiates the business and personal use, the Government has the option to tax only the personal use of the vehicle, OR the employee has the option to reimburse the employer for personal use rather than having it treated as wages. The Government also has the option to include all use as wages and notify the employee that they are reporting the full amount. Then it is up to the employee to substantiate the business use and deduct it from their - personal tax return, form schedule A.
John would you like to share with us a couple of examples of what may be considered personal use? I would be happy to provide a few examples.
Keep in mind that this is not an all-inclusive list. We have already discussed that commuting between the residence and work is considered personal use. Vacation, weekend use AND use by a spouse or by dependents is also considered personal use. An exception to personal use limitation is use that qualifies as de minimis. A few examples of excludable de minimis use of an employer-provided vehicle include:. Small personal detours while on business, such as driving to lunch while out of the office on business OR Infrequent personal use.
Infrequent personal use is generally less than one day per month. This does not mean that an employee can receive excludable reimbursements for commuting 12 days a year. Keep in mind that this rule is available to cover infrequent, occasional situations. Let me give you an example to illustrate de minimis use. Say an employee uses a government motor pool vehicle for a business meeting. The government requires employees return motor pool vehicles at the end of the business day, but the employee is delayed and the motor pool is closed when the employee arrives back at the office.
The employee takes the vehicle home and returns it the next morning. Assuming that this is an infrequent occurrence for that employee - generally happening no more than once a month, the commuting value of the trip is a nontaxable de minimis fringe benefit. So Wendy, what kind of documentation is required to determine if there is tax due from the employee? Keep in mind that vehicles are considered "listed property" and therefore, in order to support an exclusion from tax, separate records for business and personal mileage are required.
If records documenting business and personal mileage separately are not provided by the employee, the value of ALL use of the vehicle is considered wages to the employee. In that case, the employee may be able to itemize deductions for any substantiated business use on their personal Form , Schedule A. If an employee records business and personal use separately, only the personal use of the automobile is considered income.
This can have a significant impact on employees and is a sizeable incentive for employees to maintain the required documentation. So John if there is a taxable amount, for either all the use or just the personal use, how is it valued? Under the general valuation rule for fringe benefits, the amount to include in income is the fair market value. For vehicle use, fair market value is generally the lease value of the vehicle, which we will discuss in a minute, but other rules may apply in certain circumstances.
There are actually three methods that determine the personal use value of a vehicle. When the employer reports personal use as wages, they must use one of these 3 special valuation rules. Generally, these rules are applied on a vehicle-by-vehicle basis and the employer may use different rules for different vehicles and for different employees. If you drive a personal vehicle for business reasons, you may want to consider talking with your employers about a direct reimbursement or allowance.
A solution like MileIQ for Teams is an ideal way for businesses to handle mileage reimbursement programs. It uses automatic mileage tracking and standardized digital reports. This leads to:. Paying freelance taxes for the first time? Don't sweat it. Here are easy-to-follow tips that will prepare you for tax season.
A Car Allowance can add up over the year but is a car allowance taxable income on your tax return? If depends on what records your company keeps. You can write off vehicle expenses on your taxes for big savings.
It was actually intended to just be used as a tax deduction tool for individuals. A reimbursement for an employee's use of a personal vehicle should cover the business portion of the following expenses i. Looking at this list, you might realize that some of these costs are higher in certain parts of the country than others. California's gas prices and Michigan's auto insurance premiums, for example. Should drivers in expensive locations receive the same mileage reimbursement rate as drivers in inexpensive places?
Let's explore that question. The primary problem with using a standard mileage rate for all drivers within an organization is that these drivers do not actually incur costs at the same rate. Not only do some live in more expensive areas than others, but some drive a lot more than others. In order for a mileage reimbursement to work, a driver has to drive a certain number of miles per month in order to recover that month's portion of the ownership costs of the vehicle.
After reaching that amount, then the mileage-based costs like fuel, oil, and maintenance will start being reimbursed. At some point, the mileage multiplied by the mileage rate will exactly equal the combined set of expenses for that month. Once the driver reaches that magic number, each mile driven begins to become extra income.
If the driver never reaches that number, then their costs are not fully reimbursed for that month. This creates a problem.
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