Federal Mileage Rate

What is Federal Mileage Rate?

The Federal Mileage Rate is the standard cost per mile that the Internal Revenue Service (IRS) in the United States establishes for taxpayers who claim the use of their personal vehicle as a deductible expense. The mileage rate is also known as mileage per diem or deductible mileage. The rate is normally adjusted by the IRS on an annual basis, which means it is government-regulated and varies based on the purpose in which the vehicle is used. Under the law, the taxpayer is entitled to deduct either the actual expense amount each year, or an amount calculated using the standard mileage rate, depending on whichever is greater.

The standard mileage rates vary, and the current annual rates are as follows:

• Business use: $0.585 per mile
• Medical purposes: $0.18 per mile
• Charitable purposes: $0.14 per mile

The rates are based on cost data and analysis compiled and measured from auto insurance premiums, maintenance costs, gas prices, depreciation, and other costs associated with operating a vehicle.

Advantages of Federal Mileage Rate

Following the Federal Mileage Rate ensures compliance with how reimbursements are processed for employees. Reimbursing employees for business miles driven in their own vehicle is an option to either having employees bear the cost of driving their own vehicle for work or providing a fleet of company automobiles for them to use.

Reimbursements are simple to calculate and require little bookkeeping. They are also cost-efficient and provide a tax break because mileage reimbursement is a deductible business expense for companies.

How to utilize the Federal Mileage Rate

Based on the IRS rates, and if the employee uses their personal vehicle for business, here’s an example of how to use the Federal Mileage Rate and to calculate the reimbursement:

Records were kept for the past month, and they show that 175 miles were driven for business. As per the IRS and the rates stated above, the current standard mileage rate is $058.5 cents per mile. You must therefore multiply the number of miles by the rate:

[miles] * [rate] → 175 miles * $0.585 = $102.38

The amount to be reimbursed to the employee, in this case, is $102.38.

Conclusion

Some companies might use a different rate than the one set by the IRS. They may also use a different reimbursement method for business mileage, which means it’s important for the HR and Finance teams to be aware of their company’s reimbursement policies and apply them accordingly.