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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.
Need proof of the IRS mileage reimbursement rate? Here is a copy ofIRS Press Announcement setting the year 2009 rate at 55 cents per mile.
IRS Announcement of 2008 Mileage Rate Increase up to 58.5 cents per mile for July through December 2008
IRS Press Announcement setting the beginning of 2008 rate at 50.5 cents per mile.
IRS Press Release setting 2007 mileage rate at 48.5 cents per mile.
IRS Press Announcement and IRS Revenue Procedure 2005-78 setting the year 2006 rate at 44.5 cents per mile, effective January 1, 2006.
IRS Announcement increasing rate to 48.5 cents effective September 1, 2005
IRS Revenue Procedure 2004-64 for year 2005.
IRS Revenue Procedure 2003-76 for year 2004.
IRS Mileage Reimbursement Rates
Calendar Year IRS Standard Auto Mileage Reimbursement Rate 2020
57.5 cents per mile
2019
58 cents per mile
2018 54.5 cents per mile 2017 53.5 cents per mile 2016 54 cents per mile 2015 57.5 cents per mile 2014 56 cents per mile 2013 56.5 cents per mile 2012 55.5 cents per mile 2011 (Jul-Dec) 55.5 cents per mile 2011 (Jan-Jun) 51 cents per mile 2010 50 cents per mile 2009 55 cents per mile 2008 (Jul-Dec) 58.5 cents per mile 2008 (Jan-Jun) 50.5 cents per mile 2007 48.5 cents per mile 2006 44.5 cents per mile 2005 (Sep-Dec) 48.5 cents per mile 2005 (Jan-Aug) 40.5 cents per mile 2004 37.5 cents per mile 2003 36.0 cents per mile 2002 36.5 cents per mile 2001 34.5 cents per mile 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.How Long Does an Employee Have to Submit a Reimbursement Claim?
There is no date by which a reimbursement claim must be submitted, such as 90 days or 6 months after the expense is incurred or after the employment relationship is terminated. However, any claim, including reimbursement claims, is always subject to the statute of limitations. Expense claims to private employers in California should thus have at least a 2-year statute of limitations, and may have a 4-year statute.
General Rules - What is Reimbursable Business Mileage?
California law does not specifically define what is considered a reimbursable business mileage expense. However, California defines the hours worked by an employee to include "'Hours worked' means the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so." (8 CCR 1140(2)(k.) If time spent by an employee is considered work time they must be paid for, then the employee should reasonably also be paid for expenses they incur during that work time.
Additionally, IRS guidelines as to what is considered a business expense and what is considered a personal expense provide a reasonable framework for guiding reimbursement decisions.
General Rule - The general rule is that an employee is only entitled to be paid for mileage that is considered to be a business expense.
Commuting mileage is not reimbursable. The distance traveled by an employee between their home and their regular place of business is not reimbursable. In Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, the California Supreme Court stated that commuting time is not work time.Although an employer may "compel" an employee to drive to work, this commute time is personal time whose use is primarily dictated by the employee. As again stated by the Morillion court:We "distinguish between travel to and from a work site that an employer controls and requires [in Morillion this was a bus the employer required employees to take from one location to the worksite], and an ordinary commute from home to work and back that employees take on their own. Accordingly, this compulsory travel time does not include the time plaintiffs spent commuting from home to the departure points and from the departure points back again." (22 Cal.4th 575 at fn. 2.)
Travel to other locations from the regular place of work is reimbursable. Travel to and from the regular place of business to job sites, suppliers, customers, etc., is reimbursable. For example, if during the day an employee makes runs to several job sites and to a customer, all of that mileage is a reimbursable business expense."[E]mployees who commute to work on their own decide when to leave, which route to take to work, and which mode of transportation to use. By commuting on their own, employees may choose and may be able to run errands before work and to leave from work early for personal appointments."
Unlike a commute, once the employee has started work and 'is on the clock,' and the business instructs or requires the employee to travel to various places, then the mileage is certainly work related and reimbursable.
IRS Temporary Work Location Rules. The IRS has also created guidelines for determining when mileage expenses are deductible as business expenses. (IRS Publication 463.) However, it is important to keep in mind that federal law relating to federal tax deductions is not controlling on the issue of what employment expenses are reimbursable under California law.Defined - A temporary work location is a job assignment that lasts one year or less. This is a situation where an employee reports to a location for a period of time instead of reporting to their regular place of work. If the new work location lasts for more than a year, this becomes the employee's new regular place of work, and travel to and from their home is a non-reimbursable commuting expense.
Regular Place of Work - If the employee has a regular place of work, but they are assigned to work at a temporary work location, travel to and from the employee's home and the temporary work location is a reimbursable business expense. Travel between the regular place of work and the temporary work location is also a business expense.As an example: John is an employee whose regular job is an Ash Street. His travel between his home and Ash Street is not a business expense. This is a normal commute. John is assigned to work at a customer's job site on Birch Street in the same city for 6 months. His travel between his home and Birch Street is considered a business expense. Also, if John first travels from his home to Ash Street, and then to Birch Street, his mileage between Ash and Birch is a reimbursable business expense.
If an employer wants to be "safe" - then follow the IRS guidelines in deciding when to reimburse an employee.
However, travel time from home to a temporary work location could also be considered non-reimbursable commute time.Short-Travel Example: Assume John's commute distance is 10 miles. He is assigned to a temporary work location that is only 5 miles from his house. Although IRS regulations may permit John to deduct his shortened commute, it does not make sense that his employer would need to reimburse him for his mileage expense.
Long-Travel Example: Now assume John is assigned to a temporary work location 25 miles from his house. Since his work is now causing his commute to be increased by 15 miles each way, it is reasonable that the cost for this extra distance be reimbursed. Although it may still technically be a 'commute,' it is a longer commute caused by the employer. Of course, using the Morillion analysis that this is still primarily personal time the employee can use, a court may decide that there is no obligation by the employer to reimburse any of the commute distance.An employer thus has 3 choices when an employee has a temporary work location. First, to treat the issue as the IRS does for business deductions and reimburse the employee for the full travel to and from the temporary work site. Second, to only reimburse the employee for extra mileage costs they incur if the temporary work site causes them a longer commute. Third, to not reimburse the employee anything.
The second choice may be the wisest, although the first is obviously the safest to the employer. The third is riskiest, and allows a situation where different judges may reach different conclusions, and their decisions may be impacted by the length of the increased commute.
No Regular Place of Work - If the employee does not have a regular place of work, then travel to and from their home and where they are working that day is a regular commute and not reimbursable, if the job site is in the same metropolitan area. However, having an employee report to a location far away would generate a reimbursable expense.
If an employee with no regular place of work is sent to several job locations, the general rule is that travel from the employee's home to the first location is a commute, and from the last location back to home is also a commute. Travel during the day between job locations is a business expense.As an example: John is an employee with no regular work location. During a day his employer assigns him to report to do work an Ash Street, and then on Birch Street, and finally on Cedar Street. John's reimbursable business mileage expenses are for the travel between Ash and Birch, and between Birch and Cedar.
Hauling or transporting business tools and equipment in a car while commuting does not make the car expense a business expense.
Making business-related cell phone calls in a car while commuting does not make the car expense a business expense.
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
Commuting expenses
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,
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.
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.
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.
Accountable 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.Nonaccountable Plan
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 business, 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,
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'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.
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.
Legal Research
California Labor Code § 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.
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