On December 29th, 2022, the IRS announced the 2023 IRS standard mileage rate as 65.5 cents. The rate changed from the 2022 mid-year rate of 62.5 cents by three cents. The newest business mileage rate is the highest rate since 1991, and perhaps even earlier. But what is the IRS standard mileage rate? And how will it impact your company?
Motus has a lot of information on this topic. The IRS created the standard mileage rate to give companies and their employees who don’t track their exact driving costs a general idea of what reimbursement should look like. That benchmark, the business mileage rate, is also called the national mileage rate because it is an average applied nationally. We’ve been helping the IRS configure their rate for decades. But should companies default to using the IRS rate for mileage as their mileage reimbursement?
We’ll dig into this more later in the post, but the short answer is no. Mileage reimbursements should be specific and localized to the costs in each mobile worker’s location. Looking to learn more about the IRS business mileage rate? You can find more information in our comprehensive post.
There are a number of factors that go into the IRS standard mileage rate decision making process. We cover a few of them in our post, What is the Current IRS Mileage Rate? How Does it Impact Your Business? At a high level, the costs of fuel, vehicle maintenance, depreciation and insurance are all taken into consideration. As to this year’s business mileage rate, while certain factors, like gas and depreciation, appear to be falling, other costs, like the price of insurance new vehicles, are more than making up for that.
As with any major change, your company has options. And not all of them are good ones. If your company has been around for at least a few years, chances are you already have a process in place for the 2023 IRS standard mileage rate. Does that mean another option is out of the question? It shouldn’t. Especially if that option might be better for your business.
Whether or not you’re on top of the yearly change in business mileage rate, your company forgoes the change. Other things might take precedent. I mean, how high is mileage reimbursement on your list of priorities? Unfortunately, not making the change is likely to end up costing you.
There are two ways that might happen. The first is tax waste. If you reimburse above the current 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 second is legal action. In many states, under reimbursing employees (or not reimbursing them at all) violates labor laws. This may result in class action lawsuits, costing your company hundreds of thousands if not millions in settlements and legal fees.
The IRS standard mileage rate has changed and, per your company’s process, you’ve decided to change with it. It’s only a few more cents per mile. But take a moment to think about your driving workforce. How often are they on the road? How many miles are they traveling each month?
Reimbursing at the national mileage rate is an option that works best for companies with a small mobile workforce that drives regionally. We’re talking no more than 500 miles each month. Why? Because the more miles an employee puts on their vehicle, the higher the pay out, especially at the IRS business mileage rate.
Remember at the beginning of the post, when we said companies shouldn’t just default to the business mileage rate and we’d dig into the why later? This is it. If your company has a large number of drivers across the company, those miles up quickly. Now you have a much larger loss on your hands. It might be time to consider a more effective option.
As we said earlier, the IRS mileage rate is a benchmark for the entire U.S., a national mileage rate, a guideline to give companies an idea of what they should be reimbursing. But this guideline doesn’t guarantee fair or accurate reimbursement. Reimbursements should be specific to employee locations. They should never be above that rate.
So what’s the ideal? It’s a mileage reimbursement calculated specific to each individual. 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, ensuring employees receive accurate reimbursements and employers aren’t overpaying.
If you want to know more about FAVR, or why it’s the only IRS recommended business mileage reimbursement program, check out the Business Guide to FAVR.
Hopefully you’ve learned more about the 2023 IRS standard mileage rate than you knew previously. We made this post to answer two questions: “What is the mileage rate?” or “What is the IRS rate for mileage?” In 2023, the IRS standard mileage rate is 65.5 cents.
The second question, “is the IRS rate right for my company?” isn’t as simple to answer. It depends on the size of your mobile workforce and the amount of business mileage they drive. While we recommend the FAVR reimbursement program, there are a number of alternative mileage reimbursement options. Check out our post on finding the right vehicle program for your company.