What the 2019 IRS Mileage Rate means for your company
As sure as snowfall in winter, the IRS will soon be announcing the mileage rate for 2019. This rate impacts any company that has employees who drive for work. So, most companies. But what does this rate mean? How will it impact your business? Well that’s what this post is all about.
What is the IRS mileage rate?
Let’s just start by acknowledging that the IRS mileage rate has many names. It is also referred to as the IRS Safe Harbor Rate, the standard mileage rate and the IRS mileage reimbursement rate. Regardless of name, the IRS mileage rate is a guideline for mobile worker reimbursement. Employers can reimburse for business mileage at this rate, but there are more fair and accurate approaches to reimburse employees. It was also the rate at which employees that drive for work could deduct business mileage on their taxes. With the passage of the Tax Cuts and Jobs Act, that’s no longer an option.
How is the 2019 IRS Mileage Rate determined?
There are a number of factors that go into the IRS Mileage Rate. As one can imagine, they involve expenses for driving. An increase in the rate is primarily driven by:
Rising fuel costs
The price of gas is far from stable. While prices fluctuate from month to month, average fuel costs have risen 37¢ per gallon since last year. This is a trend we shared in our Fuel Trend report, and we keep tabs on oil market volatility in our Oil Check series. Historically, vehicle fuel efficiency offset the increase of fuel costs, but it did not change substantially this past year.
Increased vehicle maintenance costs
Gas prices aren’t the only thing on the rise. Vehicle maintenance costs have also increased. Part of that is labor costs. More technical qualified mechanics can ensure better repairs, but that work comes at a higher price. Not to mention, repairing vehicles also comes at a higher cost.
Higher insurance rates
OK, so a lot of things are on the rise. The insurance market saw an overall increase. And that makes sense, if you look at the increasing trend of accidents, which also makes sense, given that it parallels the increasing trend of distracted driving. If you’re upset about paying more for insurance and you’re reading this on your phone while driving… just please don’t look at your phone while driving.
Changes in vehicle costs
Consumers are not content with the standard automobile. They want built in navigation and Bluetooth enabled stereo systems, adaptive cruise control and assisted braking, among other things. Turns out, those consumer demands impact new model prices. This kind of ties back to the increased vehicle maintenance costs bit. All those cameras and sensors on the bumpers of vehicles? They’re wonderful safety features that cost a lot to replace. And replacement may be likely, considering how often bumpers are damaged in accidents. Not only that, they’re expensive to install in the first place. Most manufacturers have offered these as safety options for the past several years. Now they’re federally mandated in all vehicles as of May 2018.
And, of course, the inverse is true. If fuel costs were falling, if vehicle costs remained low and insurance rates dropped, the IRS rate would likely drop. But they aren’t, they haven’t and they won’t so the 2019 IRS mileage rate is likely to rise. Historically, the largest increase was by 8.0¢, from 50.5¢ to 58.5¢, in 2008. The largest decrease? A drop of 5.0¢, from 55.0¢ to 50.0¢, in 2010. Though we’re more likely to see a boost in the mileage rate, it’s unlikely to be a historic rise.
What should your company do to prepare for the 2019 IRS Mileage Rate?
If your company reimburses its mobile workforce at the current IRS Mileage Rate of 54.5¢, you may be looking to institute the 2019 IRS Mileage Rate in the same fashion. We recommend not doing that for a few reasons:
- Some mobile workers are unfairly under reimbursed for business mileage, while those who drive more are over reimbursed.
- Mobile workers in various areas will have different fuel and maintenance costs, resulting in further reimbursement inequity.
- The IRS Mileage rate was established as a cap that companies cannot reimburse over. It is not intended to be used as a company’s cents-per-mile rate, but a protection for taxation and possible audit.
The Fixed and Variable Rate (FAVR) reimbursement is the only IRS recommended reimbursement methodology. This is because it accounts for both the fixed and variable costs of vehicle use. To learn more about FAVR, check out this page.