If your employees use their personal vehicles for work-related tasks, you may be required to reimburse them for their mileage. Let’s look at how employee mileage reimbursement works and how to ensure you’re doing it correctly.

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What is mileage reimbursement?

Mileage reimbursement involves compensating your employees for any business-related driving they do when using their personal vehicles to travel or run business-related errands. That means employees will receive a certain amount of compensation for every mile they drive for the business. Using the IRS’s standard mileage rate of 70 cents per mile is usually the most straightforward option.

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What is considered work-related mileage?

According to the IRS, business mileage is any mileage driven between two places of work. That means you can reimburse your employees for work-related trips outside their regular commute. This includes the following activities:

  • Business trips.
  • Meetings with clients and prospects.
  • Business-related errands.
  • Business-related deliveries.

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State-specific mileage rules

There are no federal mileage reimbursement laws, but some state laws have these laws in place. As of 2025, California, Illinois, and Massachusetts are the only states that have enacted employee mileage reimbursement laws:

  • California: California requires employers to reimburse employees for any travel-related expenses, including gas and maintenance. The state doesn’t have a specific mileage reimbursement rate, but most employers stick with the IRS’s standard mileage rate.
  • Illinois: Illinois requires employers to reimburse employees for mileage and any other expenses they incur while driving their personal vehicle for work. However, employers are not required to pay for employee negligence or regular wear-and-tear costs.
  • Massachusetts: Massachusetts requires employers to reimburse employees for mileage and travel-related expenses like gas and car maintenance. There’s no specific Massachusetts mileage rate, so most employers follow the IRS’s standard mileage rate.

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Are mileage reimbursements tax-deductible?

Yes, reimbursements based on the federal mileage rate are tax-deductible. And since they aren’t considered income, they’re nontaxable for your employees, unless you provide more than the federal mileage rate.

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According to the IRS, business mileage is any mileage driven between two places of work. That means you can reimburse your employees for work-related trips outside their regular commute.

How to come up with an employee mileage reimbursement policy

Here are the biggest things you need to think about when setting up a mileage reimbursement policy:

  • Consider the location: Vehicle and fuel costs can vary significantly depending on your location. A San Francisco–based tech company will pay a different rate than a small business located in Ohio. You should choose a fair rate based on your location.
  • Find a tracking solution: Your employees need a way to track their mileage to receive reimbursement. Fortunately, apps will track your mileage so you can avoid manual logging. Using an app also ensures your employees don’t overreport their mileage.
  • Create a written policy: You must also have a written document outlining your mileage reimbursement policy. For instance, you should identify what constitutes a business trip and what doesn’t.
  • Provide examples: Using specific examples will make your policy easier for employees to understand.
  • Create a mileage reimbursement form: Finally, creating a standard mileage reimbursement form that employees can fill out each month is helpful. This form ensures you have the information you need come tax season.

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Tools to track mileage accurately

If you decide to implement mileage reimbursement, your employees will need a way to track their mileage. While manual mileage logs are an option, the following tools are usually easier and more accurate:

  • Everlance: Everlance is easier and more intuitive than many other mileage trackers. The app syncs with your phone’s GPS and tracks your mileage for you automatically. From there, you can easily label trips as personal or work-related.
  • MileIQ: When they start using MileIQ, your employees can set their work hours. From there, the app will track their mileage and automatically classify any work-related trips.
  • TripLog: TripLog offers automated mileage tracking, and employees can record receipts for any expenses they incur. And TripLog syncs with popular apps like QuickBooks, Salesforce, and Google.
  • Zoho Expense: Zoho Expense is a good option for companies that already use the Zoho suite of tools. It offers numerous ways to track mileage and includes other expense-tracking tools.

How to handle disputes or incorrect mileage logs

One study found that roughly 5% of respondents admitted to engaging in expense fraud. This included exaggerating the distance, inventing trips, or merging personal and business trips. However, some of your employees may report incorrect mileage logs by mistake.

If you notice any inaccuracies in an employee’s mileage log, don’t jump to conclusions about their intentions. Address these errors with your employee and allow them to explain their mistake and correct the log.

Over-reimbursing your employees for their mileage can lead to tax penalties for your business. So if you do suspect fraud, it may be a good idea to consult a lawyer or tax advisor who can advise you on the next steps.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

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