Mileage rates and reimbursement imperatives

The IRS’ standard business mileage rate for 2011 was 51 cents per mile for the first half of the year, and 55.5 cents per mile from July 1 through December 31. Many churches reimburse employees for number of miles driven using the IRS rate, but some choose to reimburse at rates higher or lower than the standard. It’s important to understand the differences to remain compliant with the IRS.

Employees must provide adequate logs or diaries to substantiate business miles and submit the records within a reasonable period of time.  This means at least every 60 days of incurring the expense if the employee is being reimbursed.  However, if the employee is given an advance, the records substantiating the expense should be provided at least every 30 days.  Adequate records include the date, place, business purpose and number of miles driven. Parking fees and tolls need to be reported separately.

If reimbursed at an amount greater than the IRS-approved rate: The excess amount reimbursed above the standard is subject to withholding tax and must be reported as income on the employee’s W-2 form.

If reimbursed at an amount less than the IRS standard: The employee is eligible for a business deduction for the difference in the IRS standard and the amount reimbursed.

If employees do not provide adequate records within 60 days, then the church must report the reimbursement as income to the employee. The employee is eligible to claim a business expense deduction on their personal return for the business miles driven, if adequate records can substantiate the mileage.

As a reminder, employee business expenses are deductible only if they exceed 2% of the employee’s adjusted gross income.

Other mileage rates for 2011:

–         Medical purposes and moving: 19 cents/mile (2.5 cents more than in 2010)

–         Charitable mileage deduction (unreimbursed miles while driving for a church or charity): 14 cents/mile (unchanged)