2022 Mileage Rates - Everything You Need to Know

Who should pay attention to mileage rates?

As long as employees have been driving to make a living, so too has there been a need to determine their driving expenses. These employees include:

• Those who drive their own cars to meet clients
• Those who drive to attend professional events
• Those who make deliveries or parallel duties

You’ll notice that this does not include company vehicles. This is because mileage rates are meant for those who use their own cars for work, and thus shoulder the burden of depreciation on their property.

How are mileage rates determined?

Business standard mileage rate is based on the fixed and variable expenses of running a vehicle that year. This includes all costs associated with maintaining and running a vehicle. Everything from gas and oil to insurance, registration fees, and licenses are included. In addition, the calculation takes note of repairs made to the vehicle, as well as depreciation.

It is incredibly important for employers to track their employees’ business mileage rates, both for themselves and for the employee. If you ever need help with this- whether you are employer or employee- give a call to a tax professional. Yoke Tax pros work hard to maximize your benefits and minimize your worries, no matter the situation.

What employers need to know

Employers track their employees’ business mileage and other associated costs for fuel, repairs, insurance, and general depreciation. All of this can be counted as a business expense. This brings a variety of benefits for a company, as smart deductions against business expenses can lead to a lower tax bill at the end of the tax year. 

On the other hand, this little benefit might encourage some companies to reimburse their employees at a higher rate than the IRS’s standard mileage rate. This is best to avoid for the benefit of your employee, as the excess will be seen as additional income and will be taxed as such. Not only does this confuse your employees, but it may leave them disgruntled and feeling cheated.

What employees need to know

Employees benefit because the amount paid to them in mileage rates is returned tax-free. Some accountants refer to this mileage reimbursement as a “mileage allowance,” as any expenses incurred on the employee’s vehicle for business, medical, and charity activities can be deducted from their taxes.

Employees might notice that mileage rates are more generalized and might not cover the actual costs of driving the vehicle for the company. In this case, they do have the option to calculate the actual costs of using their personal vehicle. This requires thorough documentation to validate their cost estimates, and there are a variety of small things that need to be considered in order to avoid making mistakes in the tax filing.

This is why it is highly recommended that employees who want to calculate the total cost of driving for a company consult with a tax professional. He or she will not only know the right questions to unearth hidden opportunities, but also have the skill to help you avoid frustration and a possible IRS audit trigger.

What are the 2022 mileage rates?

In cents per mile, the IRS sets the standard mileage rates for 2022 as follows:

• Business: $0.58 per mile
• Medical: $0.18 per mile
• Charity: $0.14 per mile

For example, if an employee for a window washing company drove 10 miles from his home to a client’s home, he would be paid $5.80 in reimbursement for the trip.

The drawbacks of mileage rates

This simple example shows why mileage rates can seem unsatisfactory; in a 10 mile drive, it’s definitely possible for damage to happen to a vehicle well beyond $5.80. What if the employee’s tire blows out? What if he gets caught in a crash? In more mundane examples, what if he has to pass a toll or pay for parking?

Also, what if your vehicle is a gas-guzzler? Automotive companies have been putting a lot of resources towards reducing the weight of our vehicles for over a decade. It’s well known that the heavier the vehicle is, the more gas it needs to take. The IRS does not account for the difference in weight between a sedan, SUV, and truck when determining the year’s mileage rates.

Beyond the simple complexity of these situations, some readers may have noticed that the IRS has based its calculations on 2021 gas prices. The average price of gas in 2021 was $3.00- a far cry from the common $4-$5.00 price tag seen around the country in 2022! Standardized mileage rates end up being inaccurate in identifying the true costs of these activities.

What this means for you

As a taxpayer, there are a lot of ways that the IRS is going to try and take your hard-earned money. Understanding mileage rates is one of the simplest ways that you can minimize your tax burden and maximie how much of your income you keep.

Because of the inconsistencies described in this article, it is highly recommended that employers and employees alike make efforts to determine the actual cost of driving for a company.

If the actual costs are higher than the standard mileage rates, then employers have more tax-deductible business expenses and employees have a higher tax-free mileage reimbursement.

If the actual costs are lower than the standard mileage rates, then by choosing the standard, both employer and employee benefit again.

It’s literally a win-win situation.

That doesn’t happen often when it comes to the United States tax code!

Set up a free one hour consultation with a Yoke Tax professional today, and let us handle the numbers.