The Internal Revenue Service (IRS) recently announced it is modifying its previous Notice 2022-3, 2022-2 I.R.B. 308, increasing the IRS mileage rate for 2022. The notice provides the optional standard mileage rates for computing the deductible costs of operating an automobile for business, medical, or moving expenses. The IRS mileage rate also determines the reimbursed amount from related expenses. The IRS’s modifications are the result of recent increases in fuel costs. Earlier, the IRS made inflation adjustments to contribution limits for Health Savings Accounts.
Background of the IRS Mileage Rate
Generally, employers must reimburse their employees for using automobiles for business purposes. The IRS mileage rate is an alternative to tracking actual costs of travel, including fuel expenses, for individual tax deductions. The standard rate, or safe harbor rate, also helps employers determine tax-free reimbursements for employees who use their personal vehicles for business.
Typically, the IRS updates its standard mileage rate in the fall preceding the effective calendar year. Mid-year increases to the standard mileage rate are uncommon. However, due to recent, dramatic increases in fuel costs in 2022, the IRS published Announcement 2022-13, updating its mileage rates. These increases are effective July 1st, 2022, through December 31st, 2022.
Updated IRS Mileage Rate for 2022
The revised IRS mileage rate per the recent announcement applies only to deductible transportation expenses incurred on or after July 1. This also includes mileage allowances paid to an employee after that date. Thus, employers should use the previous standard mileage rate to determine deductibles and reimbursements associated with qualifying expenses and mileage allowances paid before July 1. Meanwhile, the mileage rate related to a deduction for charitable contributions remains fixed at 14 cents for every mile.
Previous transportation expense rates incurred between January 1 and June 30:
- Business use – 58.5 cents per mile
- Medical care and moving active-duty members of the Armed Forces – 18 cents per mile
- Related to charitable contributions – 14 cents per mile.
New transportation expense rates incurred between July 1 and December 31:
- Business use – 62.5 cents per mile
- Medical care and moving active-duty members of the Armed Forces – 22 cents per mile
- Related to charitable contributions – 14 cents per mile.
More Information
Taxpayers always have the option to calculate the actual costs of using their vehicle for business purposes rather than the IRS mileage rate. If taxpayers do use the IRS’s standard mileage rate, they must opt to use it in the first year they use the car for business use. In subsequent years, they can use the standard rate or calculate actual costs. In the meantime, if chosen, leased vehicles must use the standard mileage rate method for the entire lease period. This includes any renewals to the lease.
Finally, when determining if a job applicant needs transportation for work purposes, employers should remember that certain types of interview questions are illegal. Therefore, as an alternative to asking if they own a car, employers must ask if they have reliable transportation.