What is the IRS Mileage Rate? How Does it Impact Your Business?

Every year the IRS announces a new IRS mileage rate. That number is generally somewhere between 60 cents and 30 cents, but it has considerable impact on many companies’ vehicle programs. So what is the IRS mileage rate? And when it changes, how should companies react? 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

Before 2016, employees could write off unreimbursed business mileage at the IRS business 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 IRS Mileage Rate

The IRS mileage rate is determined as a guideline for business mileage reimbursement. If you think about it, it’s easy to see there are more expenses to driving than just fuel prices. Here are a few of the contributing factors.

The Cost of Fuel

Fuel it not the only expense, but it’s still a major factor. This isn’t just how prices change at the pump. It’s what makes those changes. Is fuel production stable? Are producers competing for market share? Are they cutting back on production? The economy can also greatly impact fuel trends. In a down economy, as shipping demands decrease, fuel demands decrease. If the economy is booming, fuel demand keeps up with shipping needs.

Vehicle Maintenance

Even new cars require an oil change a few times a year. Oil changes, and other vehicle maintenance needs, can rise depending on how much use they see. Vehicle maintenance is generally considered to be recession proof. When the economy is doing poorly, people with vehicle problems still need to fix them. Vehicle maintenance costs have been on a rising trajectory for some time and doesn’t seem likely to drop anytime soon.

Insurance Rates

Accidents happen. More vehicles on the road, a higher rate of accidents. Distracted driving also increases the rate of accidents, and there’s plenty to be distracted by. As a result, insurance rates trend higher. While the cost of insurance may change with surging and shrinking number of people on the road, it’s still a cost drivers pay. For that reason, it influences the IRS business mileage rate.

Vehicle Costs

Clearly, vehicles are necessary for driving. Thus, their costs are a factor in deciding the IRS rate. And vehicles have been more expensive with each year. Some of that is a change in taste. Buyers are looking less for traditional sedans and more for compact SUV’s, hatchbacks and trucks. A good deal of it is new safety features. Back up cameras, lane departure warnings, assisted braking and pedestrian detection? Vehicle owners can appreciate these measures at increased costs.

How should your company prepare for the IRS mileage rate change?

If your company is currently reimbursing its mobile workforce at the current IRS rate, we recommend looking at alternatives for these reasons:

  • Reimbursing at the IRS rate isn’t fair to your employees. Some mobile workers will be under reimbursed, others will be over reimbursed.
  • Location affects the costs of fuel and maintenance. This also makes the reimbursement unequal.
  • Companies use the IRS business mileage rate for reimbursement, but that isn’t what it was established for. The IRS enacted the rate as a cap guide. Companies can’t reimburse over the rate. If they do, the reimbursement is taxable.

There are other, more equitable vehicle program options. The Fixed and Variable Rate (FAVR) reimbursement is the only IRS recommended reimbursement methodology. Why? Because it accounts for both the fixed and variable costs of vehicle use. Learn more about FAVR here.

Learn About FAVR

The Author

Danielle Lackey

As Chief Legal Officer, Danielle is responsible for all Motus legal affairs and works with strategic business units to drive initiatives that bolster IRS and legal compliance for Motus clients. Prior to joining Motus, Danielle co-founded and served as CEO of Cadence Counsel, a company that helps law firms and companies thrive in an environment where work, as we know it, is rapidly changing. Before founding Cadence Counsel, Danielle practiced as a litigator at Latham & Watkins, representing major corporations and senior executives in complex civil and criminal matters. She earned her J.D. with Distinction from Stanford Law School and is a graduate of Brown University (Phi Beta Kappa, Magna Cum Laude).

Read more by Danielle Lackey

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