The IRS has set out its views on two types of mileage reimbursement plans. Revenue Ruling 2004-1 discusses a courier company whose drivers make multiple deliveries over the same route, but the facts may apply to other types of carriers as well.
A company pays its drivers, who supply their own vehicles, a commission equal to a fixed percentage of the delivery charge or “tag rate.” An additional percentage of the tag rate is treated as a mileage allowance. The company requires drivers to substantiate the number of business miles they drive each month and treats only that mileage, times a fixed cents-per-mile rate, as a deductible expense reimbursement; the rest of the payment is treated as taxable compensation. Thus, the drivers do not get multiple mileage allowances for deliveries along the same route. The IRS says that treatment is appropriate.
The agency contrasts those facts with a situation in which a company treats a fixed percentage of each delivery as being a mileage reimbursement, regardless of whether the driver has already been reimbursed for the miles as part of another delivery. In that case, the IRS said the entire payment must be treated as compensation.
