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Most employers have established a mileage allowance for work-related automotive travel. The IRS has set the mileage reimbursement rate that employers may pay employees who use their own cars for company business without detailed documentation at 48.5 cents per mile for 2007. Employers that use the IRS mileage rate or a lower rate may deduct the reimbursement as a business expense, and the payment need not be included in the employee's income. The employer may deduct mileage reimbursements at a higher rate, but only if the mileage allowance reflects the actual cost of the travel and only if the employer keeps adequate records to substantiate its outlays.
Most organizations that reimburse for mileage also have a mileage allowance for parking and toll charges. Receipts or specific information are usually required before the employee is paid.
When employees use personal automobiles extensively for business purposes, the company might set up various mileage allowances to allow for differences in car makes and miles driven. Variable mileage allowance rates are more complicated to administer, but will more accurately reflect the actual cost of operation of employees’ cars.
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The HR Library has more helpful mileage allowance resources like these:
Mileage Allowances-Regulatory Analysis by State
Motor Vehicle Safety- Creating a Policy
Sample Policies on Business Travel Expenses