How You Can Prepare for the 2020 IRS Mileage Rate
In the next few months, the IRS will announce the mileage rate for 2020. That means changes for many companies’ vehicle programs. But what should be changed? And what is this IRS mileage rate? We’ll explain everything you need to know about the IRS mileage rate and more in this post.
What’s the IRS mileage rate?
The IRS mileage rate is a guideline for mobile worker reimbursement. Employers can reimburse for business mileage at this rate. As long as their allowance or cents-per-mile reimbursements are not above this rate, the reimbursement is not taxable.
A Number with Many Names
The IRS mileage rate also has several names, including, but not limited to: the IRS Safe Harbor rate, the standard mileage rate, the IRS mileage reimbursement rate, and the business mileage rate. Know that all of these names the same thing. Any variation is for style points. In all its forms, the IRS rate remains a reimbursement guideline.
No More Tax Deductions
In the past, employees could write off unreimbursed business mileage at the IRS mileage rate as a deduction. However, since the Tax Cuts and Jobs act, that is no longer an option. If your company hasn’t taken appropriate steps to make up for that with a reimbursement, you could be facing some trouble.
Deciding the 2020 IRS Mileage Rate
The IRS mileage rate is determined as a guideline for business mileage reimbursement. There are more expenses to driving than just fuel prices. Here’s a list of a few factors.
The Cost of Fuel
So, it isn’t the only expense, but it is still a major factor. And fuel trends have been far from predictable this year. Through conflict in the Middle East to falling demand, fuel production has been reliable. How these prices impact the IRS mileage rate remains to be seen.
Even if your car is new, it needs an oil change a few times a year. Depending on how much you drive for business, that could be more often than not. And vehicle maintenance is one of those costs that continues to rise. If your vehicle needs repairs, those prices are also trending high.
Insurance rates are also an expense that continually trends higher. Whether you want to blame the increasing number of accidents or the number of distracted drivers on the roads pumping those numbers higher, it’s still a cost you’re paying when you take to the roads. But hey, the IRS is probably taking that into account when determining the 2020 business mileage rate, so there’s that.
Vehicles are also getting more expensive. Partly because we don’t want the same vehicles we used to. Not when the new ones have back up cameras so you can leave your home without running over the bike in the driveway. Or Apple and Android auto, so you don’t have to hot glue your phone to the dashboard for the family road trip. Add lane departure warnings, assisted braking and pedestrian detection and it’s easy to see why the latest vehicles are so desirable. But these upgrades come with higher prices.
Will the 2020 IRS mileage rate be higher than the 2019 rate? Will it be lower? We don’t know. If gas prices maintained a consistently high price, along with insurance rates, maintenance and vehicle costs, there could be an argument for an increase in the rate. We saw a jump from 0.545 to 58 with the 2019 IRS mileage rate. But looking back at the previous rates should be an indicator that last year’s change is not a determining factor in the 2020 IRS rate.
How should your company prepare for the 2020 IRS mileage rate?
If your company is currently reimbursing its mobile workforce at the current IRS mileage rate of 58 cents, we recommend looking at alternatives for these reasons:
- While some mobile workers may be under reimbursed for business mileage, others who drive more could over reimbursed. That doesn’t sound fair, does it?
- Different areas have different fuel prices and maintenance costs. As a result, mobile workers will endure further reimbursement inequity.
- The IRS Mileage rate wasn’t established to be a reimbursement rate. It was established as a cap companies can’t reimburse over without incurring taxes. That protection from excess taxation and possible audit isn’t intended to be used as a company’s cents-per-mile rate.
There are other vehicle program options. Namely, the Fixed and Variable Rate (FAVR) reimbursement. It’s the only IRS recommended reimbursement methodology as it accounts for both the fixed and variable costs of vehicle use. Learn more about FAVR here.