Car Allowance

Forum|Forum|3 years ago
August 11, 2023
3 replies
12 views

I receive a $550 monthly car allowance that is taxable, however I drive approx 30-35K miles a year. Can I deduct the miles on my personal taxes at the IRS rate of $.655/mile?

Opus 17

Level 15

If you are a W-2 employee, no. All such miscellaneous itemized deductions were eliminated for 2018-2025. You can enter your mileage in Turbotax because the module still exists and some states allow the deduction, but it will not be a deduction on your federal return.

If you are an independent contractor, then you report your total compensation as gross income, no matter how it is allocated, and you deduct your business mileage in the usual way.

Hal_Al

Level 15

Q. Can I deduct the miles on my personal taxes at the IRS rate of $.655/mile?

A. No. As others have said, W-2 employees are no longer allowed to deduct mileage.

Even in the "old days" , job expenses were only a misc. itemized deduction. You only got to deduct that portion of your misc. itemized deductions that exceeded 2% of your AGI, and then only if your total itemized deductions exceeded the standard deduction (which was doubled under the 2018 tax law. . (2% rule explained: https://ttlc.intuit.com/questions/2902781-what-is-the-2-rule ).

Your employer is doing it correctly; when an employee is paid a monthly car allowance, that money is taxable income. However, if you employer reimburses you under an "accountable plan" (instead of paying you a lump sum monthly allowance, he reimburses you for actual business miles driven), that reimbursement is not taxable income to you (and your employer still gets to deduct it as a business expense).

$6600 (12 x $550) divided by 30,000 = 22 cents per mile.

Opus 17

Level 15

@716mafia

Note that with an "accountable plan", you have to prove your mileage with adequate records, such as a diary listing the date, purpose, and mileage of each qualifying trip. They can pay you in advance, but must periodically reconcile your mileage diary to the reimbursements and make sure you aren't paid too much. (Any mileage paid without requiring proof is considered part of your taxable income, as in your current situation.) The employer is free to pay less than the IRS rate, if that is what they offer and you accept it, but they can't pay more.

If the employer is willing to keep track and check your records, then can reimburse you tax-free and they still get the deduction as a business expense. However, by not requiring proof from you (which simplifies their paperwork, I suppose), the reimbursement is considered part of your taxable wages.