IRS Raises Standard Mileage Rates for 2019

IRS Raises Standard Mileage Rates for 2019

Business miles rate will be 58 cents per mile, up from 54.5 cents

Stephen Miller, CEBS By Stephen Miller, CEBS December 20, 2018

Update: For the 2020 standard mileage rate, see the SHRM Online article IRS Lowers Standard Mileage Rate for 2020.

The IRS has increased the standard rate that employers can use to calculate deductible expenses for operating company cars and trucks. The new rate, raised by 3.5 cents per mile to 58 cents per mile, will be effective Jan. 1. Businesses can use this amount—also called the safe harbor rate—to pay tax-free reimbursements to employees who use their own vehicles for business.

Companies that don't change their vehicle reimbursement program to reflect the 2019 standard mileage rate "may start hearing complaints from mobile workers about their reimbursement not being enough," said Danielle Lackey, chief legal officer at Motus, which provides mobile workforce management software. In addition, under-reimbursements may result in lawsuits.

What's Changing

The IRS announced Dec. 14 in Notice 2019-02 that, for 2019, standard mileage rates for the use of cars (also vans, pickups or panel trucks) will be:

  • 58 cents per mile driven for business use, up from 54.5 cents in 2018.
  • 20 cents per mile driven for medical or moving purposes, up from 18 cents.
  • 14 cents per mile driven in service of charitable organizations, which is unchanged from 2018.

While the standard mileage rates for business, medical and moving purposes are based on annual changes in the costs of operating an automobile, the charitable rate is set by statute.

Notice 2019-02 also provides that, for cars a taxpayer uses for business, the portion of the standard mileage rate treated as depreciation will be 26 cents per mile for 2019, up from 25 cents per mile in both 2018 and 2017.

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

Lost Personal Deductions

Under the Tax Cuts and Jobs Act (TCJA) that took effect in 2018, "taxpayers can no longer claim a miscellaneous itemized deduction for unreimbursed employee travel expenses," the IRS noted.

In the past, employees who were not reimbursed for business driving costs could deduct those expenses from their taxable income along with other unreimbursed work-related expenses, as long as all such expenses totaled more than 2 percent of gross income. "Outside sales employees, for example, who logged significant mileage on their vehicles but did not get reimbursed by their employer could potentially get a deduction for those mileage expenses on their personal taxes," law firm Nexsen Pruet wrote earlier this year. However, the TCJA eliminated many itemized deductions, including unreimbursed employee business expenses.

"Employees affected by this tax change may approach employers about this potential impact on their bottom line and push for a new or revised reimbursement policy to recoup these 'tax losses,' " Nexsen Pruet's attorneys advised.

Also, employees can no longer claim a miscellaneous itemized deduction for unreimbursed business travel expenses, nor can they claim a deduction for moving expenses unless they are members of the armed forces on active duty moving under orders to a permanent change of station.

Self-Employed Workers

Unlike W-2 employees, "the self-employed can [still] claim a tax deduction for their mileage as a business expense," said Marin Perez, senior content marketing manager for Microsoft's MileIQ app.

They can do so by adding up their business drives for the year "and then multiplying that by the standard mileage rate," Perez said. The IRS requires those who are self-employed to keep a mileage log or use a mileage-tracking app if they deduct their business miles, he noted.

Taxpayers may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle, according to the IRS. In addition, the standard rate cannot be used for more than four vehicles in operation simultaneously.

These and other requirements are described in Revenue Procedure 2010-51.

FAVR Plans

Businesses have the option of calculating the actual costs of using their vehicles rather than using standard mileage rates, the IRS noted.

Notice 2019-02 provides maximum vehicle expenses when using a Fixed and Variable Rate (FAVR) allowance plan, in which employees who drive their own vehicles can receive tax-free reimbursements from their employers for fixed vehicle costs (such as insurance, taxes and registration fees) and variable vehicle expenses (such as fuel, tires and routine maintenance and repairs).

Under a FAVR plan, the cost of the vehicle may not exceed a maximum amount set by the IRS each year. For 2019, vehicle costs may not exceed $50,400 for automobiles, trucks and vans. In 2018, costs were capped at $27,300 for automobiles and $31,000 for trucks and vans.

An advantage of using a FAVR plan to reimburse employees is that "in locations with higher automobile operating costs, the FAVR allowance may be more than the standard mileage rate," according to payroll, benefits and compliance firm Justworks. "The disadvantage is that the employer must recalculate the FAVR allowance at least once every three months." 

Under a FAVR plan, payments to employees must be made at least quarterly.

Flat Car Allowances

Another way for employers to "make employees whole" for their business-driving expenses is a flat car allowance, which is a set amount provided to employees over a given period to cover the costs of using their own car for business purposes—such as $400 per month for the cost of fuel, wear and tear, tires and more.

While a car allowance is relatively easy to administer, payments are taxable to employees unless handled within an "accountable plan" that requires substantiation and the return of excess amounts in a reasonable time.

Which Method ?

Choosing the Best Method to Reimburse Drivers

Although the business mileage rate set by the IRS can be an easy way to calculate the deduction for operating a personal vehicle for business purposes, the rate is not a mandated reimbursement method and "it may not be the best method for an organization to achieve cost savings, risk reduction and a happier mobile workforce," said Motus CEO Craig Powell.

It's important for companies to understand their options and when to deploy them according to their specific business needs, such as the number of business miles driven during the year, Powell explained. For instance:

  • Low-mileage drivers (fewer than 5,000 business miles per year) who drive for work occasionally but aren't using their vehicles every day for business trips are prime candidates to use the IRS business mileage rate. To file these claims, employees need an IRS-compliant mileage log but don't need to submit justification beyond that—and mileage reimbursements can be paid 100 percent tax-free.
  • For mid-mileage drivers (5,000 to 20,000 business miles per year), employers can use more sophisticated IRS reimbursement practices—such as FAVR plans that take into account variable driving costs—to more accurately and fairly reimburse their employees for the exact cost of driving for work, thereby taking full advantage of tax-free reimbursements.
  • For high-mileage workers (20,000 or more business miles per year), companies can use FAVR plans or offer a fleet vehicle program where they provide the vehicles and then charge employees for their personal use of that vehicle.

Related SHRM Article:

How to Ensure Fair Vehicle Reimbursements for Mobile Employees, SHRM Online Benefits, April 2018



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