Does The Standard Mileage Reimbursement Rate Include Fuel?

Yes. Mileage reimbursement already covers fuel.

The IRS bundles gas, oil, tires, insurance, and depreciation into one nationwide rate—70¢ for 2025. So when you cut that check, you're paying for the whole tank too.

But here's the problem. For project-based businesses, tracking transportation costs accurately is nearly impossible with the standard mileage rate system.

There are a host of issues that come out of this flat rate for mileage. With current documentation not being clear as to what to do about these issues or what is legal or compliant. 

So what exactly is the problem with a flat rate and how do we deal with it? Let's get into it. 

How the Standard Mileage Rate Is Calculated and Why Fuel Is Baked In

Every January the IRS sets one nationwide number to cover the cost of running a personal vehicle for business. The recent progression shows steady increases:

• 2020: 57.5¢
• 2021: 56.0¢
• 2022: 58.5¢ (raised to 62.5¢ on July 1)
• 2023: 65.5¢
• 2024: 67¢ per mile
• 2025: 70¢ per mile

The standard mileage rate rarely changes mid-year, but when fuel prices spiked in 2022 the IRS broke tradition and issued a July bump. 

Why does one number try to fit every driver in every state? Because the IRS bundles every major operating expense into that penny count. Fuel is only the loudest line item.

The rate also factors in oil changes, tires, repairs, insurance, registration fees, and the slow drip of depreciation you feel the moment you drive off the lot—all backed by an annual cost study released in December of each year.

When you file expense reports, you're claiming the full wear-and-tear cost of putting that truck on the road.

The IRS uses similar nationwide averages when setting per diem rates 2025, which cap daily lodging and meal costs crews can claim without receipts.

This method is simple and tax-free as long as the reimbursement does not exceed the IRS rate and employees must keep a log of business miles driven.

But that simplicity comes at a price. 

What the Rate Does NOT Cover

Project mileage isn't a blank check. The IRS rate ignores costs that look vehicle-related but sit outside "operating expenses." For example:

1. Parking fees and tolls
2. Traffic tickets or camera violations
3. Everyday commuting miles from home to the main yard
4. Premium-grade fuel when regular unleaded was approved

While the IRS doesn't include these expenses in the standard mileage rate, employers may choose to cover some of these separately. Many companies reimburse for parking fees and tolls with proper documentation, but typically not for traffic violations, fuel upgrades or commuting miles. 

Actual Expenses Alternative

The alternative to the IRS standard mileage rate is the actual expenses alternative.

Under this method, you pay for the real expenses crews rack up on the job—fuel, maintenance, repairs, insurance, depreciation, and parking.

Employees keep records of every receipt and track how much of their driving was work versus personal. If 10,000 out of 15,000 miles were job-related, they can claim 2/3 of their actual costs.

No more guessing games, but plenty more paperwork.

Every expense needs documentation—from oil changes to windshield wipers—plus a detailed mileage log proving business use. The upside? Your reimbursements match real costs, and they stay tax-free as long as they're legitimate business expenses.

How Mileage Reimbursement's Simplicity Creates Project Complications

The mileage reimbursement system is designed for simplicity. 

Instead of having to submit fuel receipts, employees simply multiply their business miles by the IRS rate and walk away with a tax-free reimbursement. 

On paper, it sounds like an efficient way to cover travel costs, but the simplicity of this system often leads to unforeseen complications, particularly for project teams.

The Project Costing Problem

The core issue hits when managing field crews.

Mileage reimbursement hides two critical details: actual fuel burned per job and price spikes.

Fuel Hikes: With no separate fuel line item, price jumps stay invisible. When diesel jumps 30% overnight, nobody notices until weeks later when the budget's already blown. By then, it's too late to fix.

Vehicle Type: A loaded F-250 towing equipment burns twice what a sedan does, but the IRS rate treats them the same. Your heaviest trucks cost you more than you're reimbursing, and that gap doesn't show up until your quarterly numbers look wrong.

Geography: Filling up in Kansas costs nothing like filling up in New York, but the IRS pays them the same. Your Kansas driver pockets extra cash while your New York crew pays out of pocket. The job cost reports never show this disconnect. When bidding work in expensive areas, your travel estimates run short and eat your profit.

The Tax and Compliance Dilemma

From a compliance standpoint, the IRS rules are straightforward: reimburse employees up to the standard rate, and the money is tax-free. Go above that rate, and the excess is considered taxable wages unless you can reasonably prove the difference.

For example, if fuel prices spike and you want to compensate employees for the extra cost, you would need to have documented evidence (like fuel receipts or specific calculations) showing that the extra reimbursement is justified by actual costs, rather than just being an arbitrary increase. Without this proof, the excess is generally considered taxable.

While there’s nothing preventing you from reimbursing less, you'd risk cheating your employees out of their wages and some states treat under-reimbursement as an unpaid wage, adding another layer of risk.

Project managers are caught in a no-win situation. The administrative burden grows with each employee and project, generating hidden costs that extend far beyond the reimbursements themselves.

Managing this delicate balance requires constant vigilance, creating a time-consuming, headache-inducing task that often goes unnoticed until the damage is done.

How To Manage The Difference

Here's how you can use both approaches to ensure the best outcomes for your company and reimbursement policy. 

Fixed And Variable Rate (FAVR) plans reimburse employees based on two factors: fixed costs incurred (like insurance, registration, and depreciation) and variable costs (like gas and maintenance), which are adjusted based on geography and actual usage. 

FAVR Plan

The FAVR plan cuts through the one-size-fits-all problem of standard mileage rates. It pays for what your vehicle actually costs you—both the fixed expenses (insurance, registration, depreciation) and the changing ones (fuel, maintenance).

FAVR fixes what the IRS rate gets wrong. Your crew's F-250 burns more fuel than an accountant's Prius, and FAVR accounts for that difference. It adjusts for your actual costs, not national averages.

The system also handles regional fuel price differences. When your team fills up in Manhattan instead of Missouri, FAVR adjusts the rate to match what they really paid at the pump.

By blending real-world expenses with simplified tracking, FAVR gives you accurate reimbursements without the paperwork nightmare. Your truck drivers get fair compensation, your project budgets reflect actual costs, and your reimbursements stay tax-compliant.

Introduce Hybrid Models for Short and Long Trips

For trips under 50 miles, stick with the IRS rate. It's simple. For longer hauls, switch to fuel cards tied directly to projects. This is allowed as long as this is clearly stated in your company policy. 

This fixes the problem of overpaying on long trips and gives you actual fuel costs instead of averages. Short trips stay simple with the IRS rate, while the real gas-guzzlers get tracked in real time.

Fuel cards coded to specific jobs let project managers see costs as they happen. No more surprise expenses. You get better control without the admin headache.

Track Costs in Real Time with Project Codes

Stop guessing which miles belong to which job. Use GPS tracking and expense platforms that tag costs to project codes the moment they happen.

This ties every mile to the right job number without the spreadsheet nightmares. Project managers see actual transportation costs.

By capturing mileage automatically and connecting it to jobs, you eliminate the Friday afternoon receipt hunt. No manual audits, no data entry errors. Every mile gets counted, every cost hits the right project, and you see what's happening with your transportation budget.

Introduce Ride-Sharing for Crews

Share rides, cut costs. When three welders head to the same job site in three trucks, you're paying triple for the same mile. One truck means one reimbursement claim instead of three.

Carpooling cuts your travel expenses. No complex software, no policy changes—just fewer vehicles on the road. Your project budget shows the difference immediately.

This works best when crews meet at the yard before heading out. One driver logs miles, everyone gets to work on time, and you stop paying for empty passenger seats.

Use Extended-Stay Lodging for Distant Jobs

Weekly rooms beat daily commutes when the math makes sense. A crew driving 90 minutes each way burns 15 hours of windshield time every week—time nobody gets paid for.

Put that crew in extended-stay rooms near the site instead. The hotel may cost more than daily mileage, but you gain back those 15 hours of productive work time. Your concrete gets poured earlier, your team stays fresher, and diesel price spikes can't touch your budget.

This fix works best on projects lasting more than a week where drive time eats productivity.

Build Fuel-Cost Protection Into Your Policy

Don't let diesel spikes wreck your estimates. Build a fuel trigger into your travel policy that kicks in when prices jump 20% or more.

This gives project managers the power to adjust mid-project when fuel costs explode. Using your own fleet data instead of national averages means you're responding to prices your crews actually pay.

The IRS allows this as long as you're reimbursing actual costs. Just keep documentation showing the price changes to stay compliant. When in doubt, check with your tax professional before rolling out any policy change.

Getting Mileage Right When Every Penny Counts

Per-mile reimbursement looks neat on paper—one IRS rate that covers fuel, tires, insurance, the whole lot. 

Stay at or below 70¢ per mile and payments stay tax-free; break past it and the extra turns into taxable wages. Simple enough for accountants, but not for you when a foreman wants to know why last week's fuel spike crushed the drywall budget.

Bundling every car cost into a single line means you'll never see which project burned gas and which just burned cash. So you juggle distance logs, project codes, and a pile of late receipts, hoping the math adds up before payroll closes.

You need tools built for crews that start before sunrise, bounce between sites, and hand you costs you can actually use. Integrated travel and expense platforms that tag trips to job numbers the moment a truck rolls out give you that clarity. Sign up for free to Engine so you can focus on the actual work—clean data, one invoice, real control.

Frequently Asked Questions

Can Employees Claim Both Mileage And Fuel Expenses?

When employees submit a mileage reimbursement claim, they cannot also submit separate receipts for fuel. This is designed to prevent overpayment, where someone could claim both the per-mile rate and the actual fuel cost.

What If An Employee Drives A Fuel-Efficient Or Electric Vehicle?

Standard rates don't care if you drive a three-quarter-ton pickup or a Tesla. The IRS uses national averages and keeps it simple. Same 70¢ payment whether you're burning $4 diesel or charging for pennies. If equity becomes a problem, you have options. Switch that EV driver to actual expenses so they log electricity costs and smaller depreciation. 

What Happens With Company Vehicles And Group Travel?

Company trucks don't qualify for mileage reimbursement. You pay for fuel directly through fleet cards while insurance and registration sit in overhead. The real headache starts when five crew members share one truck. Who claims the hotel? Who codes the gas? Without clear rules, costs hit random projects.

Direct billing fixes this mess. Fleet cards pre-coded to vehicles push expenses straight to accounting. Book hotel blocks under one master account to track rooms by project. When crews share rides, assign one person to log miles and split them by job. You get clean data, one invoice, and no weekend paperwork hunts.

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