IRS Mileage Rate for 2023: What Can Businesses Expect For The Upcoming Year?
Vesna Mihajlovic
Last update on:
July 26, 2023 2:21 PM
Published on:
Towards the end of each year, the Internal Revenue Service (IRS) establishes a new standard mileage reimbursement rate. Many organizations use this rate to reimburse their employees.
So, it’s no wonder that companies that rely on mobile teams are looking to stay informed when it comes to the latest information surrounding mileage reimbursement.
If you are looking to develop an efficient and fair reimbursement policy for mileage, or to update your existing one according to the latest adjustments in the 2023 IRS mileage rate, keep reading!
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At the end of each year, U.S. business owners are looking to prepare their budgets for the next one and adjust their existing mileage reimbursement policies according to the official IRS mileage rate.
For the time being, the mileage rate for business miles driven is 65.5 cents, while the standard mileage rate for medical/moving purposes is 22 cents per mile driven.
With that being said, let us take a look at current rates and how they are calculated in the first place.
65.5 cents per mile driven for business purposes (up 3 cents in comparison to the rate set for the second half of 2022)
22 cents per mile driven for medical/moving purposes (the same as the increased midyear rate set for the second half of 2022)
The rateper mile driven in service of charitable organizations is set by statute, so it remains at 14 cents
These rates apply as of January 1st, 2023.
What Were the 2022 IRS Mileage Rates?
(January 1st- June 30th)
After the decrease in 2020 and 2021, business rates and miles driven for medical or moving purposes went up in 2022. This increase is related to higher driving costs. Fuel prices went through the roof, and together with rising insurance rates and low depreciation rates the changes in the IRS mileage rates were inevitable.
22 cents per mile driven for medical/moving purposes
14 cents per mile driven in service of charitable organizations remains unchanged
These new rates applied as of July 1st, 2022.
What Was the IRS Mileage Rate for 2021?
The IRS mileage rate for 2021 was issued on December 22nd, 2020. Beginning on January 1st, 2021 until the January 1st, 2022, the optional standard mileage rates were:
56 cents per mile driven for business purposes (down 1.5 cents from the 2020 rate)
16 cents per mile driven for medical/moving purposes (down 1 cent from the 2020 rate)
The rateper mile driven in service of charitable organizations is set by statute at 14 cents
The optional standard IRS mileage rates for 2021 have dropped in comparison to 2020 (57.5 cents, 17 cents, and 14 cents per mile).
Historical IRS Mileage Rates
To better understand the IRS mileage rates, and how they have changed over the last ten years, take a look at the table below:
If we take a deeper look at the last five years, we can see that the rates for business-related purposes have increased from 53.5 cents per mile in 2017 to 58 cents per mile in 2019. Since 2019, there has been a slow decline in the rate, from 57.5 cents in 2020, to 56 cents in 2021.
There is a similar trend in the standard rate for medical/moving purposes. It has been slowly rising from 2016 to 2018, and peaked in 2019. This mileage rate has been gradually decreasing in the last two years.
Unsurprisingly, both of the above-mentioned rates have increased for 2022. As you’ll be able to see in the next section of the article, some of the events and economic trends in 2021 have been predicted to influence the rise in the IRS mileage rates, and these forecasts came true.
What Determines the IRS Mileage Rate?
How are the mileage rates set and what factors determine the IRS mileage rate for 2023? Let’s shed some light on factors that come into play. To calculate the standard mileage rate, the IRS takes into account cost data and statistical analysis of data from the prior year.
These data encompass costs of owning and operating a vehicle, including gas prices, auto insurance premiums, maintenance costs, and other related expenses.
There is a difference in the rates for business miles driven and the rates for medical or moving purposes. When it comes to driving for work-related purposes, the IRS mileage rate for 2023, just like all of the previous IRS rates, is based on an annual study of fixed and variable costs of operating a vehicle.
These expenses include insurance, depreciation, maintenance, repairs, gas, oil, and tires.
On the other hand, only the variable costs are used to calculate the rate for medical and moving purposes.
As for the charitable mileage rate, we’ve already mentioned that by statute, it isn’t adjusted in any way.
But there is more to setting the IRS mileage rate. It is a composite index that merges diverse data.
For example, natural disasters are one of the factors that influence insurance rates. Hurricanes and wildfires in 2017 and 2018 increased the number of weather-related claims and resulted in years of unprofitability for this industry.
So, in 2019, auto insurance premiums rose due to higher-than-expected losses in the insurance companies caused by natural disasters, among other things.
And the 2019 IRS mileage rates rose along with the rise of premiums for both commercial and corporate customers. Other factors, like increased depreciation have contributed to the 2019 surge too.
Once the COVID-19 started to spread and social distancing was encouraged, people were driving less. Due to this drop in miles driven, insurers issued refunds, and the rates either remained flat or were declining.
The cost of car repairs has also climbed, and it has added to the rise in car insurance premiums. Supply chain disruption and labor shortages have also contributed to this trend.
How Will 2023 IRS Mileage Rate Impact Your Business?
Even before the IRS mileage rate for 2023 was officially announced, based on high gas prices, increasing maintenance costs, and insurance rates, it was expected that it would go up to reflect the rise in costs of operating a vehicle.
Now that the IRS has published its 2023 mileage rate, businesses can adjust their budgets for increased reimbursement expenses.
An increase of just a few cents may not seem like much, but reimbursing just 2 cents more per every business mile driven by each of your team members can quickly add up and lead to considerable expenses.
This is yet another reason why reliable mileage tracking apps can be invaluable in saving a company’s money as they increase workers’ accountability and enable accurate mileage recording.
Understanding the Standard IRS Mileage Rate
Also known as deductible mileage, or the mileage per diem, the optional standard mileage rate is the default cost per mile, set by the IRS. The IRS establishes the optional standard mileage rate for business, medical, and moving purposes each year.
Charity mileage rate is the only one that isn’t subject to a change. Instead, it’s fixed by Congress.
To summarize, there are three standard mileage rates for taxpayers who deduct expenses of using personal vehicles for any of the above-mentioned purposes.
When it comes to miles driven for moving purposes, a 2017 tax reform has suspended moving expense deductions except for active-duty military personnel. Only members of the armed services that are relocating under permanent change of station orders can qualify for the deduction.
What Does the IRS Mileage Rate Cover?
For starters, if your employees are using their personal vehicles for work-related purposes it’s good to know that the same IRS mileage rate applies to all automobiles (cars, vans, pickup trucks, and panel trucks).
The mileage rate set by the IRS includes variable and fixed costs of operating a vehicle. The variable costs consist of the cost of maintenance (like periodic oil changes and tire rotations), gas, oil, and repairs.
On the other hand, insurance, registration, lease payments, and depreciation fall under the fixed costs of operating a vehicle.
Bear in mind that IRS mileage rates don’t cover tolls and don’t include the cost of parking. And these rates don’t vary by geography either.
Flat Rate vs a Per-Mile-Rate
Some enterprises choose to go with monthly flat rates for reimbursement, especially if their employees regularly use their vehicles for work-related purposes. Offering flat rates may seem more practical and it is a way to be in compliance with any law, but you may end up overpaying your staff for mileage.
This could also incur additional taxes.
For that reason, most of the companies go with the more cost-effective model of a per-mile-rate and stick to the standard IRS mileage rate for reimbursing their employees for business travel.
Do Companies Need to Reimburse Mileage at the IRS Rate?
According to federal laws, employers aren’t required to reimburse their employees for mileage. The IRS mileage rate for 2023 is optional, just like all of the previous years’ standard mileage rates for employees.
Still, in some jurisdictions, state laws may apply, so employers need to stay mindful of state labor laws to stay compliant.
Aside from staying legally compliant, having a mileage reimbursement policy based on the 2023 mileage rate comes with certain benefits. Most importantly, it is a smart way to attract and retain top-performing employees and get your tax deducted.
It is important to note that reimbursement is tax-free to both employer and the employee unless the reimbursement is higher than the true cost of driving for business-related purposes.In this case, the reimbursement would be considered compensation and therefore it would be taxable.
Automated Mileage Tracking - The Future of Reimbursement Expenses Management
Tracking your mileage accurately is important. If you’re audited you’ll need to show a log of the miles your employees drove to substantiate your dedication. Unfortunately, the traditional ways of tracking mileage come with numerous issues, from having to rely on employee trust to errors and inaccurate reports.
Technological advances have made it possible to get rid of paper forms and sheets and automate tracking and reimbursement expenses management. Companies that rely on field teams will particularly profit off of these smart tech solutions.
Track Your Mileage with the Best Tracking Software
Mileage tracker apps like Timeero are designed to help you track mileage driven and avoid wasting time and money on time-consuming, inaccurate reportings. And as a bonus, Timeero goes beyond simplifying mileage and time tracking.
The GPS mileage tracker uses geofencing technology, meaning it will notify your employees to start tracking time and mileage. It can also capture mileage in real time so you’re aware of which path your employees took.
There is another benefit to this tracking app - it integrates with popular accounting and payroll software like QuickBooks, ADP, Gusto, Paychex, Xero allowing you to send mileage traveled directly to your accounting software.
When looking to level up and enhance your business operations, make sure to do a thorough research and choose your software wisely.
Key Takeaways
To summarize, new standard IRS mileage rates are set each year in December for the upcoming year. On the federal level, these rates are optional and non-binding for employers. In some cases, state laws apply, and companies may be required to reimburse their employees to stay legally compliant.
In conclusion, if you are looking to develop an efficient and fair mileage reimbursement policy, sticking to the standard IRS mileage rate may be the best way to go. It provides employers with tax-deduction benefits, and more.
It is also a great perk for the company’s workforce that can help in attracting and retaining high-quality employees, the most valuable asset of every enterprise.
Automate mileage tracking and simplify mileage reimbursement
Vesna is a psychologist, researcher, and writer with a wide range of interests focused on one goal: utilizing digital solutions to take businesses to the next level. Her expertise in human resources and workforce trends combined with her understanding of software’s role in business optimization is invaluable in helping them stay on top of the curve.
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