Most of the time, you don't have to report mileage reimbursements as income on your tax return. But you will have to report it if your employer doesn't have an accountable plan -- a plan whereby the employee provides evidence or a record of business-related mileage expenses. If you received income from mileage reimbursements and your employer doesn't have an accountable plan, the reimbursement income will be listed in Box 1 of your Form W-2. You can deduct the mileage expense to reduce your taxable income.
Ask your employer whether the company has an accountable reimbursement plan. If your employer has an accountable plan, you don't need to add mileage reimbursements to your tax return or deduct mileage expenses.
Analyze the amount in Box 1 -- "Wages, tips, other compensation" -- of your annual Form W-2. If the amount in the box is larger than your annual salary and bonus, the difference is generally income from nonaccountable expense plans. For example, if your annual salary is $40,000 and $40,820 is listed in Box 1, the $820 is probably reimbursed expenses from a nonaccountable plan.
Calculate your total wages, salaries and tips for the year. This number is the sum of the amount in Box 1 of all your W-2 forms, plus any unreported tips. Record this figure in Box 7 of Form 1040, labeled, "Wages, salaries, tips, etc." Attach each W-2 to support the figure.
Calculate your total work-related mileage expense for the year. You have two choices in calculating this figure. You can either calculate actual expenses or use the Internal Revenue Service's standard mileage rate. To calculate actual expenses, add up every work-related mileage expense you incurred during the year, like gas purchases, car insurance, parking fees, registration fees, car maintenance and car repairs. If you choose to calculate actual expenses, the number will go in Section C, Box 23 of Form 2106.
If you don't want to keep track of all those receipts, you can multiply the standard mileage rate by your work mileage and use that number instead. The standard mileage rate changes each year and is found on the IRS website. If you choose this option, the number will go in Section B, Box 22 of Form 2106.
Deduct your mileage expense to lower your taxable income. To do this, you need to itemize your deductions instead of claiming the standard deduction. Enter your mileage expense by completing Form 2106, Employee Business Expenses. If you are opting to use the IRS standard mileage rate, complete Section B and skip Section C. If you've calculated your actual expenses, fill out Section C in lieu of Section B.
After completing Form 2106, the number in Box 10 is the total amount of employee business expenses you can deduct for the year. Enter the amount in Box 10 of Form 2106 on line 21 of the Schedule A. Attach Form 2106 to your main Form 1040 before filing the return.
- Turbo Tax: Federal Tax Laws on Mileage Reimbursement
- IRS Videos: Accountable v. Nonaccountable Plans
- OnLine Taxes: Can I Claim Mileage Reimbursement?
- Internal Revenue Service. "Publication 463 (2019), Travel, Gift, and Car Expenses," Page 2. Accessed Sept. 23, 2020.
- Internal Revenue Service. "Standard Mileage Rates." Accessed Sept. 23, 2020.
- Internal Revenue Service. "Publication 463 (2019), Travel, Gift, and Car Expenses," Pages 24-26. Accessed Sept. 23, 2020.
- Internal Revenue Service. "Form 2106," Page 2. Accessed Sept. 23, 2020.
- Internal Revenue Service. "How Long Should I Keep Records?" Accessed Sept. 23, 2020.
Based in San Diego, Calif., Madison Garcia is a writer specializing in business topics. Garcia received her Master of Science in accountancy from San Diego State University.