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.
If you want to deduct mileage expenses on your taxes, you need to keep track of your mileage the right way. This means using a mileage log of some kind. The IRS states that mileage records must consist of:
- Mileage driven
- Dates of business trips
- Location driven
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:
While federal law does not require employers to reimburse employee expenses and mileage, some states, such as California, do. Furthermore, federal law does require that employers pay minimum wage. When the cost of the expense causes the employee to drop below the minimum wage, the employer does have to reimburse mileage and expenses.
The IRS Standard Mileage rate changes each year based on gas prices and other factors. This year, the reimbursement rate has lowered. The rate for business miles driven – i.e. employees driving their own vehicles for work purposes – has dropped 3 and a half cents. For someone who drives 100 miles in a week for work, this is a difference of three and a half dollars.
The federal government does not require that employers reimburse for mileage. When employees pay for work related expenses, the employer has no obligation to pay them back. (There are exceptions like when expenses cause employees to fall below minimum wage.)
Except, that is, in California. Mileage reimbursement in California is required.
Last year the IRS mileage rate went down slightly, despite escalating gas prices. This year the rate went up slightly, despite decreasing gas prices.
You would think, with gas prices so low, that the mileage reimbursement rate wouldn’t go up, but instead would go down, maybe even way down. But it didn’t. It went up one and a half cents per mile to 57.5 cents on January 1st, 2015.
Mileage reimbursement is not mandatory in the US (except in some cases). However, the IRS issues a yearly Standard Mileage Reimbursement Rate as a guideline for the following purposes:
- It is the rate employees use if they claim the mileage deduction at tax time.
- It gives employers a reasonable reimbursement rate based on current research.
- The rate is used to figure the minimum wage for employees who kickback money from their own pockets.
Some people want to know if they can reimburse less than the standard mileage rate. Others want to know if they can reimburse more. The answer is yes to both.