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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29573
Experience:  Taxes, Immigration, Labor Relations
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Paying employee usage of car. Can you pay gas and pay

Customer Question

Paying employee for business usage of car. Can you pay for the gas and pay mileage, if so how is that recorded for tax purposes?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Reimbursements may be in any way and any amount as the employer sets.
However - the tax treatment may be different because some reimbursements are not reported as taxable compensation and some reimbursements must be reported as taxable wages for the employee.

Expert:  Lev replied 1 year ago.


In order to qualify as an accountable plan, your reimbursement or allowance arrangement must require that your employees meet all three of the following rules:

1. There must be a business connection to the expenditure. This means that the expense must be a deductible business expense incurred in connection with services performed as an employee. If not reimbursed by the employer, the expense would be deductible by the employee on his/her 1040 income tax return.

2. There must be adequate accounting by the recipient within a reasonable period of time. This means that your employees must verify the date, time, place, amount and the business purpose of the expenses. Receipts are required unless the reimbursement is made under a per Diem Plan.

3. Excess reimbursements or advances must be returned within a reasonable period of time. Reasonable depends upon facts and circumstances..So - when reimbursements are made BEFORE expenses are paid - the person is required to report all expenses and provide all receipts - including actual tickets. When not provided - the excess should be returned.


Regarding HOW car expenses are calculated - there are two methods - actual - based on receipts OR standard mileage method based on rages set by the IRS.
If we choose to use the standard mileage method established by the IRS to account for car expenses - that rate includes all possible expenses - and any additional reimbursements (for instance for the gas) should be reported as taxable wages.

However if the employer uses mileage rate less than allowed by the IRS - additional gas reimbursements would be allowed - as long as the total reimbursement is not more than the rate allowed by the IRS.

For instance - beginning on Jan. 1, 2015, the standard mileage rates for the use of a car, van, pickup or panel truck is 57.5 cents per mile for business miles driven.
So regardless how that reimbursement is calculated - if the employer is paying less than that amount under accountable reimbursement plan - that reimbursement is NOT reported as wages.

However if a combined for the gas and for the mileage reimbursement is above that rate - a part of reimbursement should be reported as taxable wages.

Does that answer your question?