10 Best States for Mileage Deductions
The federal government requires businesses to reimburse employees for mileage only if failure to do so lowers their net pay below minimum wage. A tiny handful of states have laws that obligate companies to pay their workers back for mileage incurred on behalf of their employers — but you could count them on one hand with two fingers to spare.
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The only relief for the rest of America is the federal mileage deduction, which the IRS allows taxpayers to omit from their taxable income to compensate for the cost of operating a vehicle while earning a living.
In 2022, the rate was 58.5 cents per mile in the first half of the year and 62.5 cents in the second half — but $0.60 per mile goes a lot farther in some states than others.
To find out which states are the best places for people looking to get the most out of mileage deductions, GOBankingRates used data from Insurance.com to identify where drivers pay the lowest average vehicle ownership cost, including the cost of gas, insurance, repairs and sales tax.
California is one of only three states that require companies to reimburse their employees for mileage, and it does so at the standard IRS deduction rate. Employees in the state receive mileage reimbursement either as a lump sum, through an actual expenses reimbursement, a cents-per-business-mile rate or some combination of all three. The refund is not taxed as income unless it exceeds the IRS rate.
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The second of three states to require mileage reimbursement by law, Illinois gives its employees at least 30 days to provide proof of mileage under the Illinois Wage Payment and Collection Act.
The law mirrors Labor Code 2802 in California, which requires reimbursement at the IRS rate or, if higher, the actual expense rate to cover mileage and fuel.
Massachusetts is the third and final state in the trio that obligates their businesses to reimburse employee mileage, which it does as part of the Massachusetts Wage Act. The state’s businesses must pay the IRS’s per-mile rate for all workers who use their vehicles as part of their jobs beyond the time they spend commuting.
Excluding the three states that require businesses to reimburse their employees for mileage incurred on the job, New Hampshire is the best state to drive while you work. The Granite State has the lowest average vehicle ownership costs in America, according to Insurance.com: $19,749 over five years, compared to the national average of $25,281 and more than $36,000 in the most expensive state, Wyoming.
The 62.5-cent deduction goes farthest in New Hampshire mostly because residents pay no sales tax when they buy their cars there — and insurance in the state costs 22% less than average.
In Wisconsin, the average driver pays $21,074 to own a car over five years, the No. 2 lowest in the country. Residents there pay less for insurance than even drivers from New Hampshire. One of just two states with triple-digit annual premiums, the $951 that Wisconsinites spend to insure their vehicles is $506 less than the national average of $1,457 — only Mainers pay less.
Massachusetts boasts the No. 3 lowest five-year vehicle ownership cost, but its mileage reimbursement law bumps it higher up on the list and puts Ohio in line just after Wisconsin. The five-year cost of ownership expense there is just $21,384. Gas is comparatively cheap in the Buckeye State, and Ohioans pay $282 less per year to insure their cars than the average American. Presuming the 2022 IRS average of $0.60 per mile, that’s a 470-mile head start.
Despite a lower sales tax rate, Vermont residents pay a little more than Ohioans to own their cars — $21,737 over five years, to be exact. The $1,100 annual insurance bill is $357 cheaper than average, which helps drivers stretch their mileage deductions farther than those in most other states.
Maine is the list’s third representative from New England and, just like New Hampshire and Vermont, it’s mostly about insurance. The average annual premium in Maine is just $845, which is $612 lower than the national average. The state joins only Wisconsin in coming in under $1,000 a year.
Oregon’s typical annual insurance premium is lower than the national average, but only by $171. The real reason that Oregon makes the top 10 is because of its sales tax rate, which is exactly zero. That’s $2,505 saved on a $25,000 car that would have been paid in Louisiana, where the sales tax rate is 10.02%.
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