The ceiling for tax-deductible reimbursement
UPDATED SEP 21, 2021 • 3 MIN READ
In this article, we will go through the optional standard mileage rate as announced each year by the IRS. It represents the highest rate at which you can receive mileage reimbursement that is fully tax-deductible when driving for business. Your employer may apply a higher reimbursement rate, but be aware that the excess is taxed as income by the IRS. We will also cover what you need to know in order to claim mileage reimbursement and tax deductions.
As of January 1st, 2021, the mileage rate for cars (including vans, pickups, and panel trucks) is 56 cents per mile driven for business. The rate for medical and moving is 16 cents per mile, while charity remains 14 cents.
When reporting for 2020, the mileage rate for cars (including vans, pickups, and panel trucks) was 57.5 cents per mile driven for business. The rate for medical and moving was 17 cents per mile, while charity was 14 cents.
If you're an employee, since the standard rates are optional, your employer can choose to use both a lower or higher reimbursement rate. Check the rates and rules with your employer before calculating your reimbursements. Here’s our guide to mileage reimbursement for employees.
If you're self-employed, you have a few more options to calculate your mileage deductions.
Also, as part of the 2017 Tax Cuts and Jobs Act (TCJA), reimbursement for moving expenses is no longer considered tax-deductible for most (unless you are an active member of the US Armed Forces “moving under orders to a permanent change of station”), beginning in 2018. See the IRS’s notice of February 2019 for more information.
As self-employed or a business owner, you always have the option to calculate the actual costs of operating your vehicle for business - this is called the actual expenses method. Read more about it and the difference between the two methods on the IRS's website.
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Simply put, this year's mileage rate is based on an examination of last year's costs of owning and driving a car.
According to the IRS, "the standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs."
Examples of variable costs include gas, oil changes, parking, tire change, getting a new battery, and other necessary components. Examples of fixed costs are insurance, license, registration fee, and taxes.
For the calendar year beginning January 1st, 2019 and ending December 31st, 2019, the IRS’s optional standard mileage rates for cars (including vans, pickups and panel trucks) were:
The IRS announcement from 2017 has a few more details, and here you'll find a list of all prior rates.
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This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for, legal, tax or accounting advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal, tax or accounting advisor.
