What is the IRS Mileage Rate?

What is the IRS mileage rate?

For anyone expecting to claim mileage on their taxes in 2024, it’s an exciting time. The IRS has released the new mileage rate.

Let’s discuss what you need to know about the IRS mileage rate and what you can expect from the IRS this year.

Table of Contents

What is the Mileage Rate?

The standard mileage rate for vehicles used for work, medical, and charitable purposes are as follows:

  • 65.5 cents per business mile.
  • 22 cents per mile for medical purposes.
  • 14 cents per mile for people working on behalf of charities.

If you’re deducting miles for moving, medical, or charitable reasons, you must itemize them on your tax return in order to claim the mileage tax deduction.

Itemizing requires you to set aside additional time when preparing your returns to fill out the big enchilada of tax forms: Form 1040 and Schedule A, as well as supporting schedules that feed into those forms.

If you’re self-employed, you’ll claim your mileage deduction on Schedule C as a business cost.

If you submit your taxes online, the program will question your miles driven during the interview and compute the deduction.

The mileage rate released by the IRS also offers guidance on reimbursement for mobile workers. The reimbursement received isn’t taxable as long as the cents per mile reimbursed isn’t above the recommended IRS rates.

Therefore, most companies will choose to reimburse workers at the stated IRS mileage rate for that year.

Other Names for the IRS Mileage Rate

The IRS mileage rate goes under many names, including the standard mileage rate, the Safe Harbor rate, the business mileage rate, and the IRS mileage reimbursement rate. If you’ve seen any of these names anywhere, they’re all the same thing.

No matter what it’s called, the stated IRS mileage rate is a guideline for reimbursement.

The TCJA has Changed the Way You Claim

The Tax Cuts and Jobs Act (TCJA) changed everything for employees. Unreimbursed mileage could be claimed as a deduction. Unfortunately, this is no longer possible.

This leaves employees in difficult situations because now it’s up to their employers to take steps to make up for it. If they don’t, you could be missing out.

Factors Impacting the IRS Mileage Rate

Contrary to popular belief, there are a lot of factors that go into the IRS determining their mileage rate for the year. Yes, fuel prices are still a big factor, but it’s far from the only influence.

Fuel Prices

Fuel prices remain a major factor. The problem is it’s hard to predict what the mileage rate will be due to conflict in the Middle East and falling demand. So it’s unclear how these prices will impact the mileage rate.

Maintenance Costs

The IRS also takes into account maintenance costs on vehicles. Even brand-new cars still need to have the oil changed every few months. If you drive your vehicle more, the maintenance costs will rise.

Vehicle repair costs increase yearly, which is an increasingly important factor in determining the IRS mileage rate.

Vehicle Insurance Costs

Another cost that’s increasing is auto insurance. But, again, there are a number of reasons for this, such as the number of accidents on the roads and the number of minor accidents caused by distracted driving.

You’re paying for this cost whenever you get behind the wheel. That’s why the IRS also factors in insurance costs.

Vehicle Costs

Vehicle costs have increased as well, with Americans spending more than ever before on cars. Cars are changing, and the demands of cars are changing. With so many new, advanced features on newer vehicles, Americans continue spending more.

Vehicle upgrades are expensive, and so the IRS is taking it into account.

What’s the Likely Mileage Rate for 2024?

It’s a strange year because it’s nearly impossible to spot the trends with everything going on domestically and internationally. Without any consistent numbers within any of these factors, it’s hard to say whether there will be another increase.

If national average gas prices remain fairly stable in 2023, expect a 2024 rate between 66-68 cents per mile.

What Should Employers Do to Prepare for the New Mileage Rate?

In the event you’re paying your employees the current IRS mileage rate of 65.5, it may be worth searching for an alternative.

There are a few reasons for this:

  • With more mobile workers, some could be being over-reimbursed. But, on the other hand, others could be under-reimbursed. That isn’t a fair system.
  • Fuel prices and vehicle costs are different depending on where you live. Therefore, it would be best if you based the reimbursement rate on the costs of your local area.

Understand that the mileage rate is not a recommendation for what companies should pay. Instead, it’s merely the limit at which companies can’t reimburse more without incurring taxes on those reimbursements.

You may want to look into other options, such as the Fixed and Variable Rate (FAVR) reimbursement. However, this is the only program recommended by the IRS as it considers both the variable and fixed costs of using a vehicle for business use.

How to Claim a Mileage Tax Deduction

Don’t worry about knowing the mileage tax deductions and how to claim them. Online tax filing asks you simple questions about your vehicle use and helps you claim the mileage tax deduction.

Online tax filing finds all the deductions and credits you are entitled to for the largest possible refund.