On December 31, the IRS announced the 2020 IRS standard mileage rate as 57.5 cents. The rate changes from the 2019 rate of 58 cents by a half cent. This is the first time the rate hasn’t increased in the past three years. But what is the IRS standard mileage rate? And how will it impact your company?
Motus has a vast amount of information on this topic. The IRS standard mileage rate is created to give companies and their employees who don’t track their exact driving costs a benchmark, a general idea of what reimbursement should look like. That doesn’t mean companies should default to using it as their mileage reimbursement. Mileage reimbursements should be specific and localized to the costs in each mobile worker’s location.
If you’d like to read more about the IRS rate, you can find that information here.
There are a number of factors that go into the IRS standard mileage rate decision making process. We explored a few of them in this post. The general trend here is, while certain prices, like gas, appear to be falling off, other costs, like insurance, depreciation and new vehicle prices, are more than making up for that.
As with any major changes, your company has options. And not all of them are good ones.
Whether or not you’re on top of the yearly change in IRS rate, your company forgoes the change. Other things take precedent, right? Well, not making the change is likely to end up costing you.
Part of that cost is tax waste. If you reimbursed at the previous mileage rate, your reimbursement is no longer tax free. That means both your company and your employees will owe taxes on mileage reimbursements. Not to mention, falling out of IRS compliance. The last thing a company needs is a surprise during an IRS audit.
The IRS rate has changed, you’ve decided to change with it. Just a few cents each mile, right? But add those miles up and multiply them across your mobile enabled workforce. Now you have a much larger loss on your hands. It might be time to consider a more effective option.
As stated previously, the IRS mileage rate is a benchmark for the entire U.S., a guideline to give companies an idea of what they should be reimbursing. Reimbursements should be specific to employee locations and they should never be above that rate. A mileage reimbursement specific to each individual is ideal. That’s why the Fixed and Variable Rate (FAVR) is the only IRS recommended business mileage reimbursement program.
FAVR covers both fixed costs and variable costs of vehicle use. If you’re interested in learning more, check here.
Hopefully you’ve learned more about the 2020 IRS Mileage Rate than you knew previously. Still curious to know more? Contact us. We’ve been helping the IRS configure their rate for decades. If you want to know more about FAVR, or why it’s the only IRS recommended business mileage reimbursement program we can help with that too.