Expense policy

IRS guidelines for California mileage reimbursement

January 4, 2020
Min Read

People take over 1.3 million business trips every single day and as many as 448 million per year. That's a lot of miles and ground covered.

Whether employees are traveling by car, plane, or train, they deserve reimbursement. Travel takes a toll on the body and people's personal vehicles.

But exactly how much reimbursement are employees entitled to? 

This article will cover the rules, regulations, and laws surrounding California mileage reimbursement to help both you and your employees.

What constitutes work-related mileage?

One question, both employees and business owners often have are - what types of travel are eligible for mileage reimbursement. To help you we have listed some of the most common forms of travel listed in most travel policies:

  • Driving to the bank to perform business-related transactions
  • Driving to various stores to purchase supplies
  • Driving to meet with clients and customers
  • All other business-related errands


1. It's essential to list all forms of travel that employees should and will be reimbursed for.

2. This information should be included in your travel policy to ensure employees understand which forms of travel are covered.

Best way to calculate mileage reimbursement

This is the most common and accurate way to reimburse employees for personal vehicle expenses. This method requires employees to track and report all of their mileage on their own. They then submit this report to the employer and are paid a specific amount for every mile they travel.

The cost per mile is designated by state law. Here's a breakdown of the current IRS mileage reimbursement rates for California as of January 2020.

  • Employees will receive 57.5 cents per mile driven for business use (the previous rate in 2019 was 58 cents per mile.)
  • Employees will receive 17 cents per mile driven for moving or medical purposes (this is a substantial increase from just 2 cents per mile in 2018.)
  • Employees will receive 14 cents per mile for miles driven to support all charitable organizations.

These IRS mileage rates are based on national averages and change annually. The IRS considers the cost of fuel, repair, maintenance, insurance, and depreciation. Although the rates are only an estimate, the Division of Labor Standards Enforcement (DLSE) deems them reasonable. 

California mileage reimbursement and the IRS

As an employer, if you choose to pay employees less than what the IRS suggests, you need to support these claims. Employers must prove that the employee's actual cost and vehicle wear-and-tear are less than the national average. 

The same rule applies to employees. If employees feel that their expenses are higher than the IRS rate, they also need to prove their vehicle operating costs are higher. 

The mileage reimbursement method is most popular because it protects both employers and their employees. It's in your best interest to pay employees the IRS rate or higher. Failing to do so could result in an unwanted lawsuit that could be difficult to win.

For example, if you pay your employees 50 cents per mile instead of the recommended 58 cents and your employee files a claim, it's now your job to prove their costs were less than the national average. This would be nearly impossible to do – and not worth your time, effort, or the 8 cents savings.

Other methods to calculate mileage reimbursement

  • Actual expense method

Another method employers use for mileage reimbursement is the actual expense method. This method involves tracking the exact expenses incurred by the employee for the use of their personal vehicle. Costs include fuel, repairs, insurance, maintenance, event registration, and depreciation costs.

Here, employees can calculate their exact expenses, and employers are responsible for allocating those costs between miles driven for work and personal use. While this is the most accurate way to calculate mileage reimbursement, it's very time-consuming and expensive.

  •  Lump-sum method 

The lump-sum reimbursement method involves employers paying employees a fixed amount for the cost of personal vehicle use. This is the ideal scenario for employees since they aren't required to track their exact mileage. Instead, they receive either a car allowance or gas stipend in the form of a per diem payment. 

The only stipulation surrounding this method is that both the employer and employee must agree that the fixed price covers all incurred expenses. Employers are also responsible for documenting other reimbursement amounts, including business expenses and labor costs, if appropriate.


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Should you reimburse mileage via regular wages or not?

As a decision-maker, it's your job to determine how you want to provide reimbursements for mileage and other business expenses. Many business owners choose to pay mileage reimbursement with an employee's regular wages. This helps keep all the records in one place and provides employees a detailed pay stub for record-keeping. 

Others prefer to keep these two financial records separate and opt to pay using direct deposit or an independent cheque. Whichever method you choose, you should ideally compensate employees within two weeks of them submitting their mileage report to avoid confusion or discrepancies. 

California mileage reimbursement protects employers: A case study

To avoid facing a lawsuit, your business must understand the ins and outs of California mileage reimbursement.

A famous court case – Gattuso vs. Harte Hanks Shoppers Inc. – helped shed light on California mileage reimbursement laws, offering business owners three ways to give back to employees.

Benefits of offering mileage reimbursement

Offering reasonable mileage reimbursement to employees not only keeps you compliant with local and federal laws but also boosts business. Here’s how:

  • Increased employee satisfaction: Happy employees are productive employees. When your staff feels appreciated, it creates a more positive work environment. This leads to increased productivity and efficiency.
  • Employees are more willing to run errands: Office errands cost money in gas and (over time) the wear and tear of vehicles. Employees that know they'll receive mileage reimbursement are more likely to say yes when asked to travel for work. It may even help attract new, highly-qualified candidates.

How to offer mileage reimbursement the right way in California?

If you're a California business owner, chances are your employees travel from time to time – and that means they deserve compensation for their business expenses.

Calculating California mileage reimbursement takes a combination of current IRS laws and common sense. Be smart about crafting a detailed mileage reimbursement policy to protect yourself and your employees.

Need help drafting a policy? Schedule a demo today!


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