Hi everyone, I’m Bette Hochberger, CPA, CGMA. For today’s quickie, I will be discussing some recent news about mileage from the IRS.
The IRS has recently announced an update to the standard mileage rate for 2024. Effective from January 1, 2024, the new rate will be 67 cents per mile, a slight increase from the 65.5 cents rate in 2023. This change, detailed in Notice 2024-8 issued on December 14, 2023, applies to the business use of vehicles including cars, vans, pickups, and panel trucks.
What Does This Mean for You?
- For Self-Employed Individuals (1099): If you’re self-employed, you can opt for a tax write-off for your business-related driving expenses without needing reimbursement. You have the choice between using the standard mileage rate or calculating actual costs.
- For W-2 Employees: Post the Tax Cuts and Jobs Act of 2017, employers may reimburse you for business-related driving, but you cannot claim a direct tax write-off. This provision will remain effective until January 1, 2026.
- Exceptions to Reimbursement Requirements: Certain groups, such as Reserves of the Armed Forces and state and local government officials paid on a fee basis, can still use the standard business mileage rate. They are allowed to deduct unreimbursed travel expenses, including the use of personal vehicles for business, as an adjustment to total income on line 12 of Schedule 1 of Form 1040.
Implications for Employers
As an employer, the standard mileage rate represents the maximum rate at which you can reimburse your employees without the reimbursement being taxed. The IRS regularly adjusts these rates based on the overall costs of owning and operating a vehicle, considering both fixed and variable costs.
Fixed vs. Variable Costs
– Fixed Costs: These include expenses like insurance, license and registration fees, and taxes.
– Variable Costs: This category covers costs such as gas, parking, oil changes, tire changes, and the purchase of new batteries.
The business rate is calculated based on both fixed and variable costs, while the rates for medical and moving purposes are determined solely based on variable costs.
This change in the standard mileage rate reflects the IRS’s ongoing efforts to align reimbursement rates with the actual costs of operating a vehicle. Whether you are an employee, self-employed individual, or an employer, it’s crucial to stay informed about these updates for accurate accounting and tax planning.
I hope you learned something new today. As always, stay safe, and I will see you next time.