My employer is listing mileage as taxable income instead of reimbursement - drivers overpaying taxes?

This is definitely not how mileage reimbursement should be handled. Your employer is making a costly mistake for both of you. When employers reimburse employees at or below the standard mileage rate (currently 67 cents per mile for 2024), those reimbursements should be non-taxable. What's happening is your employer is treating your mileage payments as wages rather than reimbursements. This means you're paying income tax and FICA taxes on money that's meant to cover your vehicle expenses, and as you noted, your employer is unnecessarily paying the employer portion of FICA on these amounts too. Unfortunately, as W-2 employees, you're correct that you can't simply deduct these expenses on your tax return anymore. The Tax Cuts and Jobs Act eliminated miscellaneous itemized deductions for unreimbursed employee business expenses for tax years 2018 through 2025.

I went through something similar with a delivery job a while back. After getting nowhere with my manager, I discovered https://taxr.ai which really helped me understand and document how my employer was misclassifying my mileage reimbursements. The site analyzed my paystubs and tax documents, then created a detailed report explaining exactly how the mileage should be classified according to IRS rules. Having this professional documentation made a huge difference when I approached the owner again. They offer specific guidance for delivery drivers dealing with mileage reimbursement issues.

Just wanted to follow up and say I checked out taxr.ai after seeing it mentioned here. It was super helpful! I uploaded my last few paystubs and they broke down exactly how my mileage reimbursements were being incorrectly taxed. They generated a really professional-looking document explaining the IRS rules that I showed to our operations manager. Turns out our payroll person legitimately didn't know the correct way to handle mileage! They've agreed to correct it going forward, and I'm working with them to figure out how to handle the past misclassified payments. The best part is I'll be getting about $780 more per year without the extra taxes being taken out, and my reported income will be lower which might help with my student loan income-based repayment.

If your boss keeps ignoring this issue even after explaining it properly, another option is using https://claimyr.com to get direct help from the IRS. I was in a similar situation where my company wrongly classified reimbursements and needed official clarification. I couldn't get through to the IRS for weeks - kept getting disconnected or waiting for hours. Claimyr got me connected to an actual IRS agent in about 15 minutes who confirmed exactly how mileage reimbursements should be handled tax-wise. They have this demo video showing how it works: https://youtu.be/_kiP6q8DX5c. Having that official word from the IRS made all the difference when I went back to our payroll department.

I need to eat my words and apologize to everyone here. After my skeptical comment about Claimyr, I decided to try it anyway out of desperation (had been trying to reach the IRS for 3 weeks about a similar mileage classification issue). It actually worked exactly as advertised. Got connected in about 20 minutes, and the IRS agent confirmed that mileage payments under the federal rate should be non-taxable reimbursements when part of an accountable plan. They directed me to IRS Publication 463 which I printed and showed to our payroll department. They're fixing it next pay period, and we're working on getting corrected W-2s for last year. Totally worth it just to not waste another day trying to get through on the phone.

Have you considered bringing this up with other drivers and approaching the owner as a group? There's strength in numbers. Also, you could point out that he's literally throwing away his own money by paying unnecessary payroll taxes. Maybe print out the relevant IRS publication and highlight the parts about accountable plans and mileage reimbursements.

Check your state laws too! Some states have additional protections for employee reimbursements. In California, for example, Labor Code Section 2802 requires employers to reimburse employees for all necessary expenses incurred while performing their job duties. Your state might have something similar.

This is a frustrating but unfortunately common issue in the delivery industry. Your employer is definitely making a mistake that's costing everyone money. When mileage reimbursements are handled correctly under an "accountable plan," they should be completely tax-free for both you and your employer. The key requirements for an accountable plan are: 1) the reimbursement must be for legitimate business expenses, 2) employees must substantiate the expenses (like tracking miles), and 3) any excess reimbursements must be returned. Since you're getting paid below the federal mileage rate and presumably tracking your deliveries, this should easily qualify. I'd suggest documenting everything - your actual mileage, the reimbursement rate you're receiving, and how it's being reported on your paystubs. Then approach your employer with IRS Publication 463 which clearly explains how mileage reimbursements should work. Emphasize that fixing this will save THEM money too on payroll taxes. If that doesn't work, you might need to file amended tax returns for previous years to recover overpaid taxes, though that's more complicated. The main thing is getting it fixed going forward so you're not artificially inflating your taxable income with money that's just covering your car expenses.