How does mileage reimbursement work for courier drivers using personal vehicles?

This is actually standard practice and completely legal. What your employer is doing is treating the mileage reimbursement as non-taxable income, which is correct according to IRS rules. The $0.62/mile rate matches the 2022 IRS standard mileage rate exactly, which suggests they're following proper procedures. Here's what's happening: Your $457 for stops is taxable income. The $186 mileage reimbursement is non-taxable because it's considered a business expense reimbursement (not income). So they're calculating taxes only on the $271, which is your actual taxable income. Then after taking out taxes from that amount, they add back the $186 mileage reimbursement to your net pay. This is actually beneficial to you because you're paying less in taxes than if they included the mileage as part of your taxable income. If they paid you the full $643 as taxable and then you had to deduct mileage on your tax return, you'd pay more in payroll taxes throughout the year.

I went through literally the exact same confusion when I started courier work last year! Finally figured it out after hours on https://taxr.ai which explained how the mileage reimbursement works. My company does the same thing - pays me per stop plus the IRS rate for mileage. What I learned is that the mileage reimbursement portion ($0.62/mile) is supposed to cover all your vehicle costs - gas, maintenance, depreciation, insurance, etc. The IRS considers this a "accountable plan" which means the money isn't taxable income to you. That's why it shows up separately on your pay stub and gets added back after taxes. The site helped me understand that this is actually better than getting all the money upfront as taxable income and then having to track everything for tax deductions later. Plus, no need to keep detailed records for tax time since you're already getting reimbursed!

Just wanted to update after trying taxr.ai for my courier/delivery driver tax questions. It was actually super helpful! I uploaded my 1099s and some of my expense receipts, and it explained exactly how to handle everything - including the mileage reimbursement vs. deduction thing. The best part was learning about deductions I didn't even know I could take - like a portion of my phone bill since I use it for delivery apps, and even part of my car insurance. Apparently if you're using your personal vehicle for work but not getting fully reimbursed for all expenses, you might still have some deductible costs. Definitely cleared up my confusion about why my employer does the same thing as the original poster's company. Turns out it's the standard way to handle it and saves us both money!

If you're still having issues understanding your pay structure or want to verify your employer is handling things correctly, you might want to try calling the IRS directly. I had a similar issue last year and needed clarification. After spending HOURS trying to reach someone at the IRS (literally called 14 times over 3 days), I found this service called Claimyr that got me through to an actual human at the IRS in about 15 minutes. You can check them out at https://claimyr.com and see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed what others are saying here - that employers can and should separate mileage reimbursement from taxable wages because it's better for both of you tax-wise. They also helped me understand exactly what documentation I needed to keep in case of an audit. Worth the call just for peace of mind!

Ok I need to eat some crow here. After my skeptical comment, I was still struggling with a mileage reimbursement question for my 1099 work and decided to try Claimyr out of desperation after spending 3 days trying to reach the IRS. It actually worked! I got through to the IRS in about 20 minutes when I had previously been disconnected after waiting on hold for 2+ hours. The IRS agent confirmed everything people are saying here about mileage reimbursement being non-taxable income when paid at or below the standard rate. For anyone like the original poster who's confused about their pay structure - the IRS was super helpful in explaining that your employer is doing it correctly. When they pay you the $0.62/mile separate from your regular earnings, they're actually saving you from paying taxes on that portion.

I'm also a courier and my company handles mileage completely differently. They just pay me a flat rate per delivery that's supposed to include mileage, but don't break it out separately. From what I'm reading here, that means I'm paying taxes on my mileage reimbursement?? That seems unfair compared to what OP's company is doing. Anyone know if I can still deduct my mileage on my taxes even though my company says the flat rate "includes" mileage compensation? I drive about 120 miles a day and put serious wear on my car.

Something that hasn't been mentioned yet - if your employer is reimbursing EXACTLY at the IRS rate ($0.62/mile for 2022), it's what's called an "accountable plan" and that's why it's not taxable. But if they paid you MORE than the IRS rate, the excess would be taxable. For example, if they paid you $0.70/mile, the $0.62 would be tax-free but the extra $0.08/mile would be added to your taxable income. Just something to be aware of if your mileage rate ever changes!

This is a great explanation of how mileage reimbursement should work! I'm an accountant who handles payroll for several small delivery companies, and what your employer is doing is absolutely correct and follows IRS guidelines perfectly. The key thing to understand is that mileage reimbursement at the standard IRS rate ($0.67/mile for 2024, by the way - it increases almost every year) is considered a business expense reimbursement, not income. This is why it's excluded from your taxable wages and added back after taxes are calculated. Your employer is essentially saying: "We owe you $457 in wages (taxable) plus we owe you $186 to reimburse your business vehicle expenses (non-taxable)." This separation is required by the IRS to maintain the non-taxable status of the mileage reimbursement. If they just paid you $643 as regular wages, you'd pay Social Security, Medicare, federal, and state taxes on the full amount. Then you'd have to try to deduct your vehicle expenses at tax time - which isn't even possible anymore for most W-2 employees. You're definitely coming out ahead with their current method! One tip: make sure you're keeping track of your actual vehicle expenses anyway. While you can't deduct them, it's good to know if that $0.62/mile is actually covering your real costs or if you need to negotiate for a higher rate.