In a rare move, the IRS increased the standard business mileage rate mid-year, effective from July 1 through the end of 2022. The IRS cited extreme increases in fuel costs as the reason in 2022, as well as in 2008 and 2011. While gasoline prices have eased the last few weeks, they remain 50 percent higher than a year ago in many cities across the United States. This increase is largely attributable to the U.S. sanctions in response to Russia’s invasion of Ukraine, as Russia is among the world’s largest gas and oil suppliers.
The IRS typically only updates the business mileage rate annually, effective January 1st of each year. IRS Commissioner Chuck Rettig says, “The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices. We are aware [that] a number of unusual factors have come into play involving fuel costs, and we are taking this special step to help taxpayers, businesses and others who use this rate.” See IRS Announcement 2022-13. The IRS noted in the news release that accompanied the announcement, that other costs besides fuel factor into mileage rates, such as depreciation and insurance as well as other fixed and variable costs
The new business deduction rate is $0.625 per mile (62.5 cents), a four-cent increase over the 2022 rate effective in January. The $0.585 per mile was a two-and-a-half-cent increase over 2021. The largest increase at one time was the mid-year jump in 2011 of 4.5 cents from $0.51 to $0.555. The mileage rate has even decreased. For example, the rate dropped in years 2016 and 2017.
Businesses may reimburse employees for business miles at whatever rate they wish, whether equal to, less than, or more than the IRS-set rate. However, a company must report any reimbursement more than the IRS rate as income to the employee. Most organizations, according to various polls, reimburse at the IRS rate, while a few reimburse under the IRS cap.
The Energy Information Administration forecasts an 11.8 percent decrease in the average price of gasoline next year, from $4.05 to $3.57. That might mean a lowering of the mileage rate again. But for now, businesses that use the optional business mileage rate deduction for travel get a bit of a break in the face of the significant rise in the cost of fuel. The IRS also adjusted the rate for medical and (military) moving expenses by two cents. The mileage rate for charitable driving remains unchanged at $0.14.
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