Mileage Reimbursement Rate Explained
- Otherwise known as the Business Mileage Reimbursement Rate, federal tax mileage reimbursement provides a tax credit authorized under the Internal Revenue Code that is available to both individuals and businesses. The credit provides a choice of one of two ways of reimbursement. First, the tax filer can report actual vehicle expenses and receive a partial cost credit. Second the filer could instead opt for a flat miles-driven rate that reimburses wear and tear on the vehicle, including mechanical expenses.
IRS Announces Rates Annually
- The Internal Revenue Service updates the rules on the mileage reimbursement option annually and usually reports the changes near December each year. The update will usually state the standard mileage rate for business driving (for example, 50 cents per mile in 2010) and special rates for medical trips, moving or relocation, or trips to deliver goods to charity.
Basis of Rates
- The IRS' mileage rates are produced by an outside consultant. The IRS outsources the task to take advantage of expertise in rate construction on vehicle costs, wear and tear, and depreciation. This selected contractor then calculates the rate impacts for both flat, sunk expenses and consumables such as fuel, oil and filters. Flat costs include the initial car purchase and insurance.
- If a tax filer, individual or business, posts the cost of a vehicle as a deduction under Section 179 (one-year total deduction) or under the Modified Accelerated Cost Recovery System (MACRS), then they can't concurrently take advantage of the standard IRS mileage reimbursement. This would be considered a double-count of a tax credit.
Further, the standard mileage rate is intended for one or two vehicles. If a filer tries to take credit for a rental vehicle or more than four vehicles at the same time, this will flag an IRS review and will be disallowed.
Charity and Relief Efforts
- A unique exemption is special rates for charity donations. A standard rate exists for delivering goods or services because the IRS recognizes the community benefits of charity. In addition, sometimes Congress enacts special exemptions for specific needs.
The Katrina Hurricane relief represents a recent exemption. Congress passed specific rates to reimburse mileage specifically for Katrina help efforts; however, documentation rules for mileage logs and trips still apply.