Update: The IRS announced their new mileage rate for 2023
The IRS has announced their new mileage rate for 2023, and it is 65.5¢ per mile. The rate for moving and medical travel (for active duty Armed Services members) is 22 cents per mile, unchanged from midyear 2022. The deductible rate for charitable travel is 14 cents per mile, also unchanged.
Additionally, the new maximum standard vehicle cost, used for calculating Fixed and Variable Rate (FAVR) allowances, is $60,800.
Looking for more articles about IRS-compliant Mileage Reimbursements?
2023 IRS Mileage Rate: Predictions and Guide to Use
When will the IRS announce the new 2023 mileage rate?
The IRS is expected to announce the new 2023 mileage rate in late 2022. 2022 is almost at an end, so we can expect a new rate any day now. Normally, the IRS releases the rate in December.
The IRS has recently announced other new guidance for 2023, for example their interest rate adjustments. We should expect to see more 2023 guidance soon.
What is the current IRS Mileage Rate?
The current 2022 IRS mileage rate is 62.5¢ per mile. The rate is set by the IRS and changes periodically, generally once or twice per year.
In July of 2022, the IRS announced that it would be changing the mileage rate for the remainder of 2022. This midyear change was the first since 2011.
Who is the IRS mileage rate for?
The IRS mileage rate is for employees who drive their own cars for business use.
The IRS mileage rate is the standard amount that you can deduct from your income for using a personal vehicle for business purposes.
It is also the basis for mileage reimbursement programs like Cents per Mile that companies use to reimburse their mobile team of employee drivers. On a Cents per Mile program, businesses track mileage and then reimburse employees at the IRS standard mileage rate for every mile driven—so, this year, when the IRS rate is 62.5¢ per mile, if your employee drives 1,000 miles in one month, you can reimburse them $625 tax-free.
Predictions on Future IRS Mileage Rates
The IRS has yet to release their estimates for 2023 mileage rates. They are still gathering data from all over the country and will be releasing a report shortly. However, since gasoline prices are not as high as they were when the IRS rate was set to 62.5¢ per mile, it is possible that the IRS rate will remain the same for 2023.
Given that inflation is still high, I would be surprised to see the IRS lower the mileage rate.
How businesses can use the IRS mileage rate
Businesses can benefit from using the IRS mileage rate to reimburse their employees tax-free. As long as you use mileage tracking software or log books to substantiate your business mileage activity, you can pay anything up to the IRS mileage rate as a tax-free reimbursement to employees. No payroll or income tax needs to be deducted from mileage reimbursements of this nature.
You can also reimburse anything up to the IRS mileage rate tax-free. The rate is an “optional” standard mileage rate meaning you can pay anything less than the standard rate, and it’s still tax-free.
Moreover, you can also use the IRS standard mileage rate as a measure for whether your accountable allowance is tax-fee. That is, if you use IRS regulations contained in IRS document 463 to pay an accountable allowance, the test of whether that program is tax-free or not is a comparison with the IRS standard rate.
Let me give you an example.
One version of an accountable car allowance is to just pay $600 dollars per month. Perhaps you choose this method because your company has always had a $600 per month car allowance, and now you want to make it tax free. How can you do this?
Simply put, you just need to track mileage, and then divide their allowance by the number of miles driven. So, if your driver covers 1,000 miles in a month, they will be reimbursed $0.60 per mile, meaning that their allowance is tax free. It’s less than the standard rate, so it’s tax-free.
If, however, they only drove 500 miles one month, they would have gotten $1.20 per mile, meaning that their car allowance would not be tax-free.
However, in this case, you do not need to tax the entire allowance. Rather, you only tax the delta—the difference between the allowance paid and the mileage rate. So you only need to calculate tax on 57.5 cents per mile, or $287.50 that month. You need to calculate both payroll and income tax on that amount, and deduct it from the employee’s paycheck.
We should know about the new IRS rate soon. The IRS standard mileage rate is a simple tool to calculate employee reimbursements for business driving expenses. Businesses can use it to help design vehicle reimbursement programs, and individuals to help calculate driving deductions at tax time.
Disclaimer: nothing contained in this blog post is legal or accounting advice. Consult your lawyer or accountant and do not rely on the information contained herein for any business or personal financial or legal decisions. While we strive to be as reliable as possible, we are neither lawyers nor accountants. For several citations of IRS publications, on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.