Recently, the Internal Revenue Service (IRS) issued its 2023 standard mileage rate increases for calculating standard mileage deductions. In brief, the notice provides the optional 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 2023 standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. Meanwhile, the rate for medical and moving purposes is based on variable costs. Earlier, the IRS issued tax inflation adjustments and 401(k) and IRA contribution limit increases for the 2023 tax year.
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. The 2023 standard mileage rates apply to electric and hybrid-electric automobiles, as well as gasoline and diesel-powered vehicles.
2023 Standard Mileage Rate Increases
The IRS issued Notice 2023-03 containing the optional 2023 standard mileage rates and the maximum automobile cost used to calculate the allowance under a fixed and variable rate (FAVR) plan. Additionally, the notice provides the maximum fair market value of employer-provided automobiles available to employees for personal use in 2023. For this calculation, employers may use the fleet-average valuation rule or the vehicle cents-per-mile valuation rule. As of January 1, the 2023 standard mileage rates for cars, vans, and trucks break down thusly:
- Business use – 65.5 cents per mile driven (up 3 cents from the 2022 mid-year increase)
- Medical care and moving active-duty members of the Armed Forces – 22 cents per mile driven (unchanged since the 2022 mid-year increase)
- Related to charitable contributions – 14 cents per mile driven (also unchanged since the 2022 mid-year increase)
Note, however, that under the Tax Cuts and Jobs Act, taxpayers may not claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Nor may they claim such a deduction for moving expenses unless they are active-duty members of the Armed Forces moving under orders to a permanent change of station.
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.