Lower Standard Mileage Rate for Business Deductions Announced for 2017

IRS sets standard mileage rates for business activities of 53.5 cents per mile

Stephen Miller, CEBS By Stephen Miller, CEBS December 16, 2016
Lower Standard Mileage Rate for Business Deductions Announced for 2017

The IRS has issued the 2017 optional standard mileage rates that employers and taxpayers can use to calculate the deduction for operating an automobile for business reasons, as well as for charitable, medical or moving purposes.

The new standard mileage rate is the amount a U.S. taxpayer and companies can deduct on a 2017 tax return for recorded business miles in a personal vehicle. Notice 2016-79 contains the amount a taxpayer must use in calculating depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 53.5 cents per mile for business miles driven, down half a cent from 54 cents for 2016. This is just the fifth time in the last 16 years that the rate has fallen instead of rising.

  • 17 cents per mile driven for medical or moving purposes, down 2 cents from 19 cents for 2016.

  • 14 cents per mile driven in service of charitable organizations. The charitable rate is set by statute and remains unchanged.

[SHRM members-only HR Q&A: Do we have to reimburse personal auto mileage for business-related trips?]

The standard mileage rate for business 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.

"Factors contributing to the decision on this year's slight decrease in the safe harbor reimbursement rate [for business mileage] include declining fuel prices, which were largely offset by rising vehicle insurance and maintenance costs," said Donna Koppensteiner, senior vice president of business development at Wisconsin-based Runzheimer, a business vehicle and relocation-services provider.

"Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates," Koppensteiner said.

Limits on Claiming the Deduction

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle, the IRS said. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other requirements for using a standard mileage rate to calculate the amount of a deductible business expense are found in Revenue Procedure 2010-51.

Under a Fixed and Variable Rate Allowance (FAVR) plan, employees drive their own vehicle and can receive nontaxable reimbursements for their fixed and variable vehicle costs. In 2017, for computing the allowance under a FAVR plan, the standard automobile cost may not exceed $27,900 for automobiles excluding trucks and vans (down from $28,000 in 2016) or $31,300 for trucks and vans (up from $31,000).

3 Common Business Vehicle Programs

The tax implications for business vehicle programs vary significantly. Here are three types of common business vehicle programs and their tax implications:

  • Allowances: This is the easiest compensation program for employers, explained Donna Koppensteiner, senior vice president at Runzheimer. However, it's by far the most significant tax burden of all programs. With 100 drivers, companies waste about $364,800 on taxes alone.
  • FAVR: The most tax-advantageous program, employees are reimbursed tax free. 
  • CPM: Cost-per-mile programs have heavy IRS reporting requirements, and deductions can be less predictable without accurate mileage capture.

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