The car allowance amount is substantiated by the monthly business mileage multiplied by the IRS mileage rate. With this type of reimbursement an employer will create a preset car allowance that is paid each month. This is a hybrid car allowance/reimbursement. Mileage allowance (car allowance with mileage substantiation) For 2023 the IRS mileage rate is $.655/per mile. Each month she is reimbursed the set rate the IRS establishes. She drives her car to different locations each day and records her mileage. The IRS mileage rate represents an average of last year’s vehicle costs across the country.Įxample: Amanda works as a merchandiser for a large company. The IRS mileage rate is set every year in December, although the rate has changed mid-year three times in its history. This is the best-known mileage reimbursement rate because it was the rate used for tax deductions as well as for federal workers. Each month Dakota records her business mileage and is reimbursed $.35 for each business mile. Dakota drives her personal vehicle to different doctors’ offices for business while managing company sales representatives. Employees maintain a mileage log and are reimbursed either weekly, bi-weekly, or monthly depending on their employer.Įxample: Dakota is a sales manager for a pharmaceutical company. Many businesses establish a mileage rate that is less than the IRS mileage rate. Mileage is the most common form of vehicle reimbursement. Different types of vehicle reimbursements Mileage reimbursement This is what keeps the reimbursement tax-free.Ī vehicle reimbursement can come in different forms beside standard mileage reimbursements, which we'll explore below. Vehicle reimbursements require business substantiation via mileage or actual expenses. It requires the logging of business miles driven over that period of time, unlike a car allowance.Ī reimbursement, unlike an allowance, does not compensate employees to offset expenses but actually pays back the employee for business use of a vehicle. Each month he receives the same car allowance regardless of how many miles he drives or what his expenses are.Ī mileage reimbursement is a type of vehicle reimbursement that pays a mileage rate multiplied by the employee's mileage over a period of time – often monthly. His company provides $600 a month to cover these expenses. He drives his personal vehicle for business. The car allowance covers vehicle expenses like fuel, insurance, and maintenance.Įxample: Ryan is a sales rep for a manufacturing company. The employer pays the car allowance either monthly, bi-weekly, or weekly as part of the employee’s paycheck, making it taxable compensation.

How a car allowance worksĪ car allowance is a set amount that an employer pays to offset the business use of an employee’s personal vehicle.

If equal to or less than the IRS standard rate, a mileage reimbursement is non-taxable. A mileage reimbursement is a cents-per-mile rate multiplied by the employee's monthly mileage amount. mileage reimbursement – What's the difference?Ī car allowance is a periodic stipend paid to an employee for the use of a vehicle and is usually taxable. If your job requires you to use a vehicle to carry out responsibilities, then it is right for the company to offset expenses. Your employer may provide you with a car allowance or a mileage reimbursement to pay for the business use of your personal vehicle.

Cents per kilometre reimbursement