California employees must be reimbursed for their employment related expenses, including mileage reimbursement. Although the IRS rate is not required to be used, it often is.
There is an extensive resource about California mileage reimbursement and related employment issues at Lawzilla. Be sure to check it out.
IRS Mileage Reimbursement Rates
The standard automobile mileage reimbursement rate set by the IRS for 2015 - 57.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2014 - 56 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2013 - 56.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2012 - 55.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2011 (Jul-Dec) - 55.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2011 (Jan-Jun) - 51 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2010 - 50 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2009 - 55 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2008 (Jul-Dec)- 58.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2008 (Jan-Jun)- 50.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2007 - 48.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2006 - 44.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2005 (Sep-Dec) - 40.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2005 (Jan-Aug) - 40.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2004 - 37.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2003 - 36 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2002 - 36.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2001 - 34.5 cents per mile.
The standard automobile mileage reimbursement rate set by the IRS for 2000 - 32.5 cents per mile.
What if the Employee is Reimbursed at a Rate Less Than the IRS Rate?
An employer is not required to reimburse their employee at the rate set by the IRS. A lower rate can be used. However, regardless of the rate set by the employer, California law requires that the employee be reimbursed for all of his or her employment-related expenses.
What if the Employee is Reimbursed at a Rate Higher Than the IRS Rate?
An employer is not required to reimburse their employee at the rate set by the IRS. A higher rate can be used. However, the amount in excess of the IRS rate is considered by the IRS to be taxable wages.
If the employee's actual expenses exceed the established IRS rate, the employee must itemize their deductions to deduct the excess.
After Termination, When Must Expenses Be Reimbursed?
Final pay issues are discussed in the Final Pay area.
Questions and Answers
Q: In the San Francisco Bay Area what is the fair car mileage reimbursement per mile?
A: The standard mileage reimbursement rate shown above. There is no different gas reimbursement rate for employees living in areas with high living expenses. Thus, the reimbursement rate is the same for someone in San Francisco and Fresno.
Q: What is the mileage reimbursement law from a home office?
A: The same mileage rate applies. If the home office can be a principal place of business then there can be a reimbursement for driving to another workplace. Simply driving from home to work is commuting and that is not deductible.
Q: Is a mileage stipend tax deductible to the employee?
A: Receiving money as a stipend to reimburse expenses is not counted as income to the employee, and it is not deductible by the employee. This applies if the stipend reasonably approximates actual expenses. If expenses are $100 and a stipend is $1000, the excess of $900 could be treated as taxable income.
Q: can a business pay california employees a mileage rate less than the IRS?
A: Yes. However, actual expenses must be paid. Consider the IRS rate a safe haven. Once an employer moves away from the IRS rate they are entering a danger zone they are at risk of being sued for not fully reimbursing an employee. Even if the reimbursement amount is small, paying attorney fees, and the employee's attorney fees if a business loses the issue, can be substantial.
Q: Is a notice required to change, decrease or increase the auto reimbursement expense?
A: If the business has a set reimbursement rate then yes. If the policy is to pay the IRS rate, whatever that is, then no.
Q: What are the penalties for not paying California mileage reimbursement?
A: Repayment of reimbursement plus paying the employee's attorney. In some situations it is possible additional penalties imposed by the labor code could also apply.
Mileage Expenses That Can Be Deducted
Driving from one workplace to another workplace. If a person works at two places in a day, whether or not for the same employer, they can deduct the expenses of getting from one workplace to the other.
Visiting clients or customers
Going to a business meeting away from your regular workplace
Driving from a home office to a workplace. This is not commuting if the home office qualifies as the person's principal place of business.
Mileage Expenses That Can Not Be Deducted
Driving your vehicle between your home and your regular workplace is a commuting expense
Employee Tax Deduction for Reimbursed Employment Expenses
There is no tax deduction for employees for reimbursed expenses. If an expense is reimbursed by your employer you cannot also claim the amount as a tax deduction.
Employee Tax Deduction for Unreimbursed Employment Expenses
Unreimbursed vehicle mileage expenses may be deducted if they are:
Paid or incurred during the tax year,
Unfortunately, there are severe deductibility limitations for unreimbursed employee expenses and it will virtually always be better for the employee if the expenses are reimbursed by their employer. Not only is this tax advantageous for the employee, but California Labor Code § 2802 requires it.
While the person was acting as an employee, and
The expenses were ordinary and necessary.
An expense is ordinary if it is common and accepted for it to be incurred in the employee's type of work, and it is necessary if it was appropriate and helpful to the work. Generally, mileage expenses will meet these requirements.
Unreimbursed mileage expenses can be deducted only if an employee itemizes their deductions. There is no deduction if a standard deduction is used.
For those employees who itemize, unreimbursed employee expenses are considered to be miscellaneous deductions on Schedule A. This means that a person can only deduct the amount of expense that is more than 2% of their adjusted gross income. Form 2106 must be completed to determine the amount that can be deducted.
Employer Tax Deduction for Employee Expenses
A business can generally deduct the amount paid to reimburse its employees for their vehicle expenses. The reimbursement that is deducted and the manner in which it is deducted depend in part on whether the business reimburses the expenses under an accountable plan or a nonaccountable plan.
An employer will have an accountable plan if it:
Pays expenses that would otherwise be deductible by the employee,
Requires the employee to substantiate the expense, and
Does not permit the employee to keep any reimbursements that exceed expenses.
If the employer does not use an accountable plan, mileage reimbursements should be included as wages on the employee's W-2.
If a mileage reimbursement is included in Box 1 on Form W-2, the employee needs to include that amount on the wages line of their tax return.
If the employee itemizes their deductions, they can deduct their business mileage expense as an employee business expense, subject to the 2% limitation of adjusted gross income.
Monthly Car Allowances
Some employers provide their employees with a flat monthly car allowance. This payment is included in the employee's taxable wages on their form W-2 unless the allowance is paid under an accountable plan. To be an accountable plan, the expense reimbursement must meet all of the following qualifying requirements:
The employee is reimbursed for expenses incurred while performing services during the scope of their employment 4,
If the employer's reimbursement arrangement does not meet all three of these requirements, the payments received by the employee should be included as wages on the W-2. The employee will then report the payments as income, complete Form 2106, and itemize to determine if any of the expense can be deducted.
The employee must account to the employer for their expenses within a reasonable period of time, and
The employee must return any excess reimbursement within a reasonable period of time.
If the employer pays a single lump sum to the employee that includes both wages and an expense reimbursement, the business must specify the amount constituting the expense reimbursement.
Reimbursement Of Previously Deducted Expense
It sometimes happens that an employee deducts an unreimbursed business expense one year, only to be reimbursed by their employer the next year. This is called a recovery.
Employee Itemized Their Deductions
The full amount of the recovery must often be reported by the employee as income in the year it is received. However, the tax law is ridiculously complex if there is a recovery and the employee itemized and there are numerous rules to be applied, depending on a person's specific tax situation, that determine how much of a recovery must be reported as income. For a detailed discussion of the tax situations, rules, and worksheets to be completed, refer to IRS Publication 525 Taxable and Nontaxable Income, pages 18-23.
Employee Did Not Itemize Their Deductions
If the employee did not itemize their deductions in the year the recovery was received, and the expense was only deductible if the employee itemized (unreimbursed employment expenses would meet this criteria), then the recovery does not need to be reported as income.
California Labor Code section 2802
(a) An employer shall indemnify his or her employee for all necessary expenditures or losses incurred by the employee in direct consequence of the discharge of his or her duties, or of his or her obedience to the directions of the employer, even though unlawful, unless the employee, at the time of obeying the directions, believed them to be unlawful.
(b) All awards made by a court or by the Division of Labor Standards Enforcement for reimbursement of necessary expenditures under this section shall carry interest at the same rate as judgments in civil actions. Interest shall accrue from the date on which the employee incurred the necessary expenditure or loss.
(c) For purposes of this section, the term "necessary expenditures or losses" shall include all reasonable costs, including, but not limited to, attorney's fees incurred by the employee enforcing the rights granted by this section.