If you’re an employee or employer, you’re probably aware that a lot of things change in the beginning of each year. This year, for instance, we’ve already seen changes to the US overtime policy new salary history bans in Ohio, New York, and New Jersey, and changes to Form W-4. Of course, to keep us on our toes, the IRS has placed a new regulation upon us. On December 31st, 2019, the IRS released the new standard mileage rate for the year 2020. Their official notice explains the rules of the optional standard mileage rate within the next year. Taxpayers will use this rate when computing deductible costs when using a vehicle for business, charitable, medical, or moving expense purposes.
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.
Federal law doesn’t mandate the reimbursement of mileage expenses. However, employers and employees can use the IRS mileage rate, which the IRS posts each year, as a guide for reimbursement.
While it is ultimately up the employer what to reimburse, it’s probably better to reimburse the the exact IRS mileage rate. Here’s why: