Gas prices at $5 a gallon and much higher have even caused the IRS to take notice.
Effective July 1, the Internal Revenue Service is increasing its optional standard mileage rate for business use to 62.5 cents per mile. That’s up 4 cents per mile from the current 58.5 cents per mile.
We haven’t seen the IRS make such a mid-year move since 2011. But again, we’re dealing with searing gas price hikes this summer.
Michigan drivers pay on average $5.22 per gallon for regular, up 87.2 cents per gallon from a month ago, according to the latest data from AAA Michigan. The national AAA average is $5.014 per gallon.
Michigan’s average this week is up nearly $2.05 a gallon from a year ago, when the average price was $3.17 a gallon.
Gasoline prices soared 48.7% over the 12 months to May, according to the latest data from the US Bureau of Labor Statistics.
How the standard mileage rate works
The IRS standard mileage rate is a key benchmark used by the federal government and many businesses to reimburse employees for out-of-pocket mileage expenses.
Although commonly referred to as the mileage rate, it is not designed to reflect only what it costs to fill up. It also takes into account other expenses associated with driving for business.
This new offer will not help everyone and certainly will not cover the astronomical costs of daily trips to the office or the factory. But all four cents per gallon can add up.
James O’Rilley, CPA and tax manager for Doreen Mayhew in Troy, said employees get a higher IRS rate if the company they work for chooses to reimburse eligible employees for business miles flown using the rate. standard mileage.
The higher rate starting July 1 will help these employees, he said, cover higher gas prices, as well as the high costs of car insurance, repairs and rising cost purchasing or leasing a car or truck in light of limited vehicle inventory due to microchip shortages.
The IRS standard business mileage rate cannot be used to claim an itemized deduction for unreimbursed employee travel expenses under the Tax Cuts and Jobs Act, which remains in effect. in force until 2025.
A self-employed taxpayer filing a Schedule C may use the standard rate to deduct mileage expenses incurred in the course of carrying on business. You can only use one method – the standard mileage rate or the business portion of actual expenses – for the same vehicle.
Taxpayers have the option of using a more complex method to calculate the actual costs of using their vehicle rather than using standard mileage rates.
Will you be reimbursed 62.5 cents per gallon? Maybe not
Remember, not all companies will pay 62.5 cents per gallon to reimburse their employees for mileage.
“Companies are not required to reimburse based on the federal mileage rate, although most do,” said Mark Steber, director of taxes at Jackson Hewitt Tax Service.
Reimbursing businesses will likely follow the new higher rate, Steber said. But others say that’s not always the case.
The higher rate puts more expense on a company’s books.
“But otherwise,” Steber said, “their employees were absorbing those travel expenses and it probably wasn’t a viable long-term plan, at least to keep employees happy.”
O’Rilley said some companies offer mileage reimbursement below the standard mileage rate, making it harder to know how many companies will increase mileage rates.
“I suspect the decision to increase the reimbursement rate would be determined by a company’s financial condition at that time,” O’Rilley said.
“Some businesses are struggling to survive with production that has yet to recover to post-pandemic (levels) and the end of government subsidies,” O’Rilley said.
Lower mileage rates apply under different circumstances.
The new IRS rate will be 22 cents per mile – also up 4 cents – for deductible medical expenses for the remainder of 2022.
The 22 cents per mile deduction applies to active duty Armed Forces members traveling due to a military order involving a permanent change of position.
Overall, however, taxpayers can no longer deduct mileage for their regular moving expenses under the Tax Cuts and Jobs Act.
An IRS rate of 14 cents per mile for work-related mileage for charities remains unchanged as it is set by law.
IRS Commissioner Chuck Rettig said the special step to adjust standard mileage rates takes into account the recent increase in fuel prices.
“We are aware that a number of unusual factors have come into play regarding fuel costs,” Rettig said in a statement.
The IRS typically updates its mileage rates once in the fall for the following calendar year.
Be warned, though, you don’t qualify for that higher rate if you drive for work in June.
The IRS notes that the lower fares that were put in place earlier this year will cover travel in 2022 from January 1 through June 30.