Employees that travel on business frequently accumulate hundreds, if not thousands of dollars in out of pocket expenses annually. Some employers will reimburse the worker up to IRS standard deduction rate of $0.555 per mile while others may return much less and sometimes nothing at all. Is your employer treating the reimbursement correctly for tax purposes and how should you report it on your own tax return?
What is the standard mileage rate deduction?
This is a deduction that is generally available for those that use their personal car for business, medical, or in support of a charitable organization. For 2012, business travelers can deduct 55.5 cents per mile for business travel. The mileage rate deduction is claimed as an itemized deduction on your tax return if you are itemizing for the year. Remember, you can either itemize deductions or take the standard deduction.
What if my employer reimburses me for my mileage?
You cannot claim a tax deduction because the out of pocket expenses were returned to you by your employer. It is very important to note that this type of reimbursement is considered part of an accountable plan in which the monies received should not be reported on your W-2 form as taxable wages. As such, no withholding taxes should be taken from the reimbursement check. The only instance in which the reimbursement would be reported as taxable wages on your W-2 form, is if the amount returned was in excess of the costs and above the standard mileage rate of $0.555.
What happens if my employer makes a partial reimbursement?
For instance, let’s suppose that you traveled 1000 miles during the year, but, your employer only reimbursed you $250 or $0.25 per mile as opposed to the standard rate of $555 or $0.555 per mile. In that case, you can itemize that out of pocket expense on schedule A of your tax return for the difference or the $305. Please note that if you elect the standard deduction, you cannot itemize. If do intend to itemize this expense, please make sure that you have copious note detailing your travels in case of a future audit.
What if my employer doesn’t reimburse me at all?
You would simply report the expense as an itemized deduction on your Schedule A of your 1040 and keep supporting documentation. You will lose this tax benefit if you elect the standard deduction.
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