How to Calculate Mileage Reimbursement (2026 Step-by-Step Guide)

Calculating mileage reimbursement sounds complicated — but once you understand the core formula and the IRS rules around it, it takes less than a minute. This guide walks you through every scenario: employee reimbursement, self-employed deductions, and running payroll for a team.

Step 1 — Know Which IRS Rate Applies

The IRS sets three different mileage rates for different purposes. Make sure you're using the right one:

For the vast majority of use cases — driving to client meetings, job sites, business errands — you'll use the $0.70 business rate.

Step 2 — Log Every Business Trip

Before you can calculate anything, you need the miles. The IRS requires a contemporaneous mileage log — meaning you record trips as they happen, not months later from memory. Each entry must include:

1. Date of the trip
2. Starting point and destination
3. Business purpose (e.g., "client meeting at Acme Corp")
4. Total miles driven (odometer start and end, or a mapping app reading)

Most people use a mileage tracking app, a spreadsheet, or our free mileage log generator. Any format works as long as it captures those four elements.

Step 3 — Do the Math

Multiply your total business miles by the IRS rate. Here are common examples:

Step 4 — Determine Tax Treatment

If you're an employee being reimbursed:

Your employer pays you the calculated amount. As long as it doesn't exceed $0.70/mile and you submit a mileage log (accountable plan), the reimbursement is completely tax-free. No W-2 reporting, no income tax owed on it.

If you're an employer reimbursing employees:

Reimbursements at or below $0.70/mile are deductible as a business expense and are not subject to payroll taxes. Amount above $0.70/mile must go through payroll as taxable wages.

If you're self-employed:

Claim the deduction on Schedule C, Line 9 (Car and truck expenses). The deduction reduces your net self-employment income, which lowers both your income tax and your self-employment tax (15.3%).

What Trips Count as "Business Miles"?

The IRS is specific about what qualifies. Business miles include:

• Driving between your regular office and a client location
• Traveling between two job sites or work locations
• Going to a temporary work location (for most workers)
• Driving to meet clients, vendors, or business partners
• Business errands (bank deposits, supply runs, etc.)

Business miles do NOT include:

• Your daily commute from home to your regular workplace
• Personal errands combined with a business trip (only business portion counts)
• Driving to a second job from your first job (this is personal commuting)

Calculating Reimbursement for a Pay Period

If you reimburse employees on a bi-weekly or monthly basis, the process is:

1. Employee submits mileage log for the period
2. Verify trip details and business purpose
3. Multiply total miles × $0.70
4. Issue reimbursement separate from payroll (or as a non-taxable addition)
5. Retain the log for at least 3 years for audit purposes

Frequently Asked Questions

Can I use a rate higher than $0.70/mile?

Yes, but only the $0.70/mile portion is tax-free. Anything above that is taxable income to the employee and must be included on their W-2.

Can I switch between the standard rate and actual expenses each year?

You can switch from the standard rate to actual expenses in a later year, but you cannot switch back to the standard rate for that vehicle once you've used actual expenses with MACRS depreciation.

Do I need to track personal miles too?

Yes. You need to know both your total miles driven and your business miles in order to calculate the business-use percentage of your vehicle — required if the IRS ever audits your deduction.