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Driving Costs that the IRS Mileage Rate Covers

diving costs

You’ve seen the mileage reimbursement rate that the IRS publishes each January but do you know where the number comes from? Many people think the rate is based on gas prices alone but if that were the case, mileage reimbursement would be much lower than the published rate. If your car gets 27 miles to the gallon, for example, then rather than reimbursing 54 cents per mile, you’d be reimbursing more like 10 cents!

Actually, the reimbursement rate per mile is figured from various factors associated with owning, driving, and maintaining a vehicle.

Driving Cost Research

Runzheimer

“The IRS has utilized Runzheimer data and research to calculate the mileage deduction rate since 1980, referencing numerous amounts of data elements, such as vehicle depreciation, auto insurance premiums, fuel and maintenance rates.”

Employers don’t have to use the IRS rate for mileage reimbursement though. They can use any rate they choose (except in certain circumstances). So employers are generally free to use other rates based on criteria that better matches their employee’s driving habits, location, and vehicle.

Other research

AAA publishes similar research that is available to read on their website. According to their research, driving costs are based on:

  • Fuel
  • Insurance
  • Depreciation
  • Maintenance
  • License/registration/taxes
  • Finance charges
  • Tires

In 2016, the cost of operating a vehicle for one year was $8,558, according to AAA’s 2016 Your Driving Costs study. This breaks down to a cost of about 57 cents per mile, based on driving 15,000 miles per year.

Using a Higher or Lower Rate

Employers might want to use a higher or lower rate than the rate based on average statistics. For example, sales people that drive a newer car 50,000 miles per year in California would have higher expenses than average. They would have a higher car payment, pay higher gas prices, and need to replace their tires more often. A higher reimbursement rate would be more appropriate in this case. On the other hand, an employee in a rural area that only drives a handful of times a year for her employer in the old car that she owns, might not need the full reimbursement rate.

The IRS rate is useful because research backs it for general use but employers that are looking for a more tailored rate can make necessary adjustments.

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4 Comments

  1. Employees Can Deduct the Mileage Employers Don’t Reimburse – HR for Small Business
    Employees Can Deduct the Mileage Employers Don’t Reimburse – HR for Small Business September 22, 2017

    […] The purpose of the IRS Standard Mileage Rate is not to require that employers reimburse employees for mileage at that rate (or at all, in fact), but to give the employee a rate for mileage deductions at tax time, as well as to give employers a reasonable reimbursement rate based on current research. […]

  2. jane doe
    jane doe March 19, 2021

    If my employer reimburses my Mileage do they claim my mileage on there taxes at the 57 cents rate? When they are only paying me a lower fixed rate.

    • hand over
      hand over March 19, 2021

      Car allowance $330 per month for 12 months. $3960
      .13 per mile at 36k miles each year. $4680
      Total $8640.
      Strait miles at .57 per miles * 36k total $20160
      Where is the $11,520 left over going each year?

    • Lindsay Sommers
      Lindsay Sommers March 24, 2021

      Employers and independent contractors may use mileage as tax reimbursements. If the employer is reimbursing you more than the IRS rate, then the difference is considered taxable income.

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