20.34 Automobile Mileage Allowance

If your employer paid you a fixed mileage allowance of up to 55.5 cents per mile for business miles driven in 2012, the amount of your driving costs is treated as substantiated under the accountable plan rules (20.32), provided you show the time, place, and business purpose of your travel. If the allowance is in the form of an advance, it must be given within a reasonable period before the anticipated travel and you must also be required to return within a reasonable period (20.32) any portion of the allowance that covers mileage that you have not substantiated.

If these tests are met, the allowance will not be reported as income on Form W-2, and you will not have to report the allowance or expenses on your return; see Example 1 below. If you do not prove to your employer the time, place, and purpose of your travel, the entire reimbursement is treated as paid from a non-accountable plan and will be reported as income on Form W-2.

Your employer may reimburse you for any parking fees and tolls in addition to the mileage allowance.

EXAMPLES
1. In 2012 you drove 12,000 miles for business. You accounted to your employer for the time, place, and business purpose of each trip. Your employer reimbursed you at the IRS rate of 55.5 cents per mile. None of the reimbursements will be reported as income on your 2012 Form W-2, and you do not have to report the reimbursements or any expenses on your return if you do not have substantiated expenses exceeding 55.5 cents per mile.
2. Same facts as in Example 1, except that your employer reimbursed you at a rate of 60 cents per mile. The amount using the IRS rate, or $6,660 (.555 × 12,000 miles), is $ 540 less than the reimbursement of $7,200 (.60 x 12,000) The $540 excess reimbursement over the IRS rate will be reported as wages on your 2012 Form W-2.
If you had records substantiating expenses over the IRS rate of 55.5 cents per mile, you could claim them on Form 2106 if you itemize deductions. The excess of your expenses over the IRS rate would be reported on Form 2106 and that excess would be entered on Schedule A (Form 1040) as an unreimbursed employee expense, but the deduction is subject to the 2% AGI floor for miscellaneous itemized deductions (19.1).
3. Same facts as in Example 1, except that you were reimbursed only 50 cents per mile for all your business driving, for a total reimbursement of $6,000 (.50 x 12,000 miles). The reimbursements will not be reported as income on your Form W-2. You may be able to deduct expenses up to the IRS rate by reporting the expenses and the reimbursements on Form 2106. The amount using the IRS rate is $6,660 (.555 x 12,000 miles) If you itemize deductions, you can report the excess expenses of $660 on Form 2106 and then enter them on Schedule A (Form 1040) as unreimbursed employee expenses, but the deduction is subject to the 2% AGI floor for miscellaneous itemized deductions (19.1).

Fixed and variable rate allowance (FAVR).

In lieu of setting the allowance at the IRS standard mileage rate, an employer may use a fixed and variable rate allowance, called a FAVR, that gives employees a cents-per-mile rate to cover gas and other operating costs, plus a flat amount to cover fixed costs such as depreciation or lease payments, insurance, and registration. A FAVR allowance must reflect local driving costs and allows employers to set reimbursements at a rate that more closely approximates employee expenses. If your employer sets up a qualifying FAVR under IRS guidelines, you will be required to provide records substantiating your mileage and certain car ownership information. Expenses up to the FAVR limits are deemed substantiated and will not be reported as wages on your Form W-2.

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