HOW TO CALCULATE MILEAGE: How to Calculate Reimbursement 2022

how to calculate mileage
Image Source: The Balance Small Business

Mileage calculation is something you should look forward to. Not necessarily because it is fun, but because of the reimbursement or deductions you’d get from taxes when you calculate your mileage. However, you need to qualify for this, and the IRS determines the standard rate used to calculate it every year. So make sure you look up their current rate before you calculate your car mileage. Technically, the rate is applied to determine your reimbursement or mileage deductions for personal vehicle business miles driven.

IRS Mileage Rate 2022

Generally, the mileage rate changes every year thanks to the IRS. Most often, the change is a result of the increase in fuel prices. For the 2022 deduction on taxes or reimbursement for work or car, you need the IRS rate below to calculate your mileage. The table below is the current IRS mileage rate that will take effect from July 1st, 2022.

PurposeAmountMile
Business62.5per mile
Medical & moving purpose22Per mile
charity-related driving14Per mile
2022 IRS Mileage Rate

How to Calculate Mileage Reimbursement Rate

When it comes to reimbursement of mileage, most employers use the IRS standard rate to calculate it. All that is required is to simply multiply the total number of miles driven by each employee by the standard rate.

Must Employers Use the Standard Mileage Rate for Reimbursement?

Not really. However, not sticking with the mileage rate has one of two negative effects. When you go above the standard mileage rate, the reimbursement loses its tax-free benefits. Secondly, when you go below the standard rate, employees can simply subtract the differences when filling for return. 

How to Calculate Mileage Reimbursement Rate: Conditions

Before you will be reimbursed, one of these conditions needs to be met;

When you use your personal car for work-related activities and want to calculate reimbursement, your employer calculates your reimbursement based on the IRS’s standard mileage rate.

Example

Let’s say you followed our guide on how to calculate mileage for a car and want to claim reimbursement instead of deduction on taxes on your 250 miles driven for work. You will have to multiply the number of miles by the current mileage, which is 62.5 cents per mile. So we will have 250 x 0.625 = $156.25. You will get $156.25 as your reimbursement.

#2. Using Company’s Car and Footing the Operating Expenses

When an employee uses the company’s car, the standard mileage rate no longer applies. The reason is that there are certain qualifications that must be met before a car can qualify for mileage reimbursement or tax deduction. One such condition is that the user must be the owner because the standard rate includes the cost of ownership and not just the cost of operation. So in this case, the company will set a millage rate. If a company sets its millage rate at 25 cents per mile. Using the same 250 miles, your reimbursement will be as follows. 250 X 0.25 = $62.50.

How to Calculate Mileage for Rate Taxes

For mileage taxes and how to calculate them, you need to first measure the amount of driving you do. This is relevant because you need the miles to calculate your taxes. You will have to track your annual mileage incurred while engaging in business-related activities. There are two perfect ways to track your car mileage. The first is to use a mileage tracking tool or simply record it yourself using excel. Trust me, a tracking tool is perfect as well as hassle-free. However, you must remember that you need the IRS standard rate for the year to accurately calculate your tax-deductible. 

How to Calculate Mileage for Rate Taxes: Methods

There are two methods used to calculate mileage for taxes, they are the actual expense mileage rate and the standard mileage rate.

#1. Standard Mileage Rate

For the standard mileage rate, the IRS usually releases a set rate annually for the standard mileage rate. From January to June 2021, the standard mileage rate was $0.58 per mile. However, the number increased to 62.5 cents per mile on the 1st of July. Calculating this rate is actually very easy. 

#2. Actual Expense Rate

The actual expense rate is more focused on the cost of operation. The cost of operation here includes the following: gas, tolls, insurance, repairs, and other relevant costs.

IRS standard For Taxes 

  • Annual mileage for business and personal purposes.
  • Mileage for each business trip taken with the car 
  • Purpose of the trip as well as time and place

How to Calculate Mileage on a Car

Presently, the mileage of a car is one of the factors that people check out when planning to buy a new car. Fortunately, modern cars now give higher fuel economy estimates and real-time mileage indicators, which come with an ARAI-certified rating.

How to Calculate Mileage on a Car: A Step-by-Step Guide

The following is a detailed guide on how to accurately calculate a car’s mileage.

#1. Fill Your Tank

Want to calculate the mileage on a car? The first thing to do is to fill the fuel tank. To do this, you need to use a pre-decided fuel pump and a specific dispenser to fill the car’s tank. As soon as the fuel level reaches the upper half of the fuel tank, the refueling system will stop. This is important because fuel dispenser nozzles have an automatic cut-off mechanism. As soon as this happens, note down the quantity of fuel that you just refilled.

#2. Reset Your Trip Meter

The second step in how calculating a car mileage is to set the trip meter back to zero. You will find this on the instruction cluster. 

#3. Stick to the Speed Limit

If you like me, going beyond the speed limit is thrilling as opposed to driving within the speed limit. I mean, who wants to crawl on a wheel? Unfortunately, going beyond the expected speed limit means your car consumes more fuel. Always remember, going above the estimated speed limits means more fuel. Therefore, it is advised to drive under the speed limit to obtain your car’s actual fuel efficiency reading. Unfortunately, you will have to stick to the normal speed limit till you exhaust the fuel if you intend to calculate your car mileage.

#4. Drive the Car Around

Start driving after filling the petrol tank up and resetting the trip meter. It is advised to go at least 250–300 kilometers before refueling. Refueling again could take days, but if you are using more fuel before you refuel, you will need to fill up with additional fuel, which will enable you to get a level estimate.

#5. Refill Again

As soon as your car is low on fuel, visit that same pump and refill again. Once more, do not refill the dispenser once it stops due to the auto cut-off. Take note of how much fuel was used.

#6. Determine the car’s mileage.

Calculate your car’s mileage by dividing the distance you traveled, as indicated by the trip meter, by the amount of fuel consumed. It isn’t something difficult; it’s quite simple.

Understanding Car Mileage Calculation

The car’s mileage is equal to the number of miles traveled and the amount of fuel used.

Why Do People Calculate Mileage?

Reimbursement and Tax deductible. Although this depends on the individual in question. For instance, a worker will calculate his mileage for reimbursement while the company or employer will claim tax relief.

Millage Tracking Tools

Tracking software helps you accurately measure the miles you travel and your fuel consumption within a year. If you intend to claim a tax deduction or request reimbursement, you’d need the information to proceed. Manually documenting your mileage can be a burden. Luckily, technology presents us with stress-free tools that help one measure their mileage accurately. What’s more? Some of these tools are free. Another fascinating thing about this software is that it categorizes trips between business and personal.

The Top Best Millage Tracking Tools

The following are some of the top best mileage tracking tools available,

  • Quickbooks
  • Triplog
  • Everlance
  • Hurdlr
  • MileIQ

Conclusion

Although there’s no legal rule that demands employers to pay and reimburse their workers, some companies may lose staff should they refuse to do so. Additionally, mileage isn’t something everyone is engrossed in, but then being reimbursed for expenses incurred will go a long way. So if you are an employer, do well to reimburse your workers and claim your tax relief too. You just have to utilize it.

How To Calculate Mileage FAQs

How do I prove my mileage for taxes?

You must record the start and finish odometer readings of a qualifying trip, as well as its reason for being there and the date, in order to claim the normal mileage deduction. Taxpayers can write off car expenses including lease payments, insurance, gas, and tolls even if they don’t wish to track their mileage.

Do you need receipts to claim mileage?

You cannot claim the gasoline receipt unless you can demonstrate that you utilized the entire tank of petrol you bought with the receipt for work miles, for example, by filling up a hire car or by proving that the automobile is parked at the business location and is never used for personal travel.

How much can I claim for fuel in a company car?

If you use a business automobile, you are not eligible to receive mileage reimbursement. However, you can deduct gasoline costs for any business miles that you have already paid. If you use a corporate automobile for personal purposes, you cannot deduct your gas costs or business mileage.

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