Nonprofits have been a cornerstone of American society since its earliest days. During colonial times, churches and early nonprofit organizations laid the foundation for the country's social structure. Over the centuries, nonprofits have grown and diversified and continued to have a profound impact on society.
Given their significant role, nonprofit organizations must adhere to strict guidelines, especially regarding financial matters like expense reimbursements. The IRS closely regulates these reimbursements to ensure compliance and prevent abuse, leaving little room for nonprofits to operate outside these guidelines.
If you manage or work for a nonprofit, it's essential to follow all IRS financial guidelines, particularly those related to travel expenses such as mileage and meals. This guide provides valuable tips to help ensure your nonprofit remains compliant with IRS regulations and best practices for expense reimbursement.
What is Nonprofit Mileage Reimbursement?
Mileage reimbursement for nonprofits refers to the process by which organizations compensate employees, volunteers, or directors for miles driven in service of the nonprofit’s mission. This reimbursement is typically calculated based on a standard rate per mile set by the IRS.
IRS Mileage Reimbursement Rate for Nonprofits
For charitable organizations, the IRS has set a standard mileage rate of 14 cents per mile driven. Notably, this rate has remained unchanged since 1998, reflecting the fixed statutory nature of this reimbursement rate.
However, it's important to note that under the Tax Cuts and Jobs Act, nonprofits can no longer deduct any unreimbursed employee travel expenses. This makes it even more critical for nonprofits to ensure that all travel expenses, including mileage, are reimbursed following IRS guidelines.
Pro Tip: Always require original receipts or invoices when processing reimbursements. These documents should include the vendor's name and address, which helps maintain compliance with IRS financial rules and prevents potential issues during audits.
How to Create an Accountable Plan For Mileage Reimbursements?
Failure to comply with IRS regulations can lead to serious consequences for nonprofits. To avoid this, it's crucial to establish an accountable plan for mileage reimbursements. An accountable plan is a reimbursement arrangement that meets specific IRS requirements, allowing organizations to reimburse expenses without including them in the recipient’s taxable income.
To ensure your nonprofit’s mileage reimbursements qualify under an accountable plan, keep the following in mind:
- Timely Reporting: Employees or volunteers must report their expenses within 60 days of incurring them. This ensures timely processing and compliance with IRS regulations.
- Purpose Alignment: The expenses must be directly related to your nonprofit's mission or purpose. For example, mileage incurred while delivering food to the needy or attending a community outreach event would qualify.
- Returning Excess Reimbursements: If an employee or volunteer receives reimbursement exceeding the actual expense, they must return the excess amount to the nonprofit within 120 days.
These rules are designed to prevent fraud and apply to all individuals associated with the nonprofit, including volunteers, directors, and employees.
Example: Imagine a volunteer driving a 50-mile round trip to deliver donated goods to a local shelter. Under the IRS rate, they would be reimbursed $7.00 (50 miles x 14 cents). They should submit a mileage log and any relevant receipts within 60 days to ensure the reimbursement is processed under the accountable plan.
Benefits of an Accountable Plan For Mileage Reimbursements
While the IRS doesn’t require nonprofits to document their accountable plan in writing, doing so can significantly benefit the organization. Many nonprofits reimburse their directors and key employees for work-related expenses through various methods, such as:
- Payment Advances: Providing funds before the expense is incurred.
- Nonprofit Credit Card: Using a credit card dedicated to the nonprofit’s expenses.
- Direct Billing: Charging expenses directly to the nonprofit’s account.
- Direct Reimbursement: Reimbursing the employee or volunteer after the expense is incurred.
By following IRS guidelines, your nonprofit can enjoy several advantages:
- Payroll Tax Exemption: Reimbursements made under an accountable plan are not subject to payroll taxes, reducing the financial burden on the nonprofit.
- No Reporting to the IRS: When an accountable plan is in place, there’s no need to report these payments to the IRS, simplifying your nonprofit’s tax filings.
- Exclusion from Taxable Income: Employees, volunteers, or directors do not need to include these reimbursements in their taxable income, which can be a significant benefit.
Pro Tip: Even with an accountable plan in place, it’s essential to maintain detailed records. If employees, volunteers, or directors fail to adhere to the plan's guidelines, the reimbursements could be reclassified as taxable income, leading to complications during tax season.
How Fyle Can Help With Nonprofit Mileage Reimbursements
For nonprofits, the primary focus should always be on expanding their donor base and furthering their mission to help those in need. Worrying about errors in financial record-keeping should never be part of the equation.
That’s where Fyle comes in—a business mileage tracker designed to handle all your mileage reimbursement needs with precision and ease.
Effortless Mileage Tracking
Fyle’s mileage tracking is powered by Google Maps, offering the most accurate distance calculations. Simply enter your starting address, any stops along the way, and your final destination. Fyle takes care of the rest, automatically calculating the distance and applying the appropriate mileage rate. It doesn’t get more convenient than this!
Accurate Commute Deduction
Since commutes from home to the office aren’t eligible for mileage reimbursement, Fyle allows users to input their home and work addresses. The software will then automatically exclude those miles from the total, ensuring your mileage calculations are accurate and compliant.
Seamless ACH Reimbursements
Fyle simplifies the reimbursement process by allowing nonprofits to issue payments directly to employees via ACH. With just a single click, you can reimburse multiple employees, ensuring timely and efficient payments every time.
Automate Receipt Management
Managing receipts can be a hassle, but Fyle makes it easy. Employees can upload receipts on the go using text messages, the mobile app, or everyday apps like Gmail, Slack, and Outlook. This streamlined process reduces the burden of financial record-keeping and ensures compliance with IRS mileage reimbursement guidelines.
Ready to streamline your nonprofit’s day-to-day operations and stay compliant with ease? Schedule a demo with Fyle today and discover how our solution can provide real-time updates for reimbursable expenses, all within your nonprofit’s budget.
Let Fyle handle the heavy lifting so you can focus on making a difference.
