What Is Your Mileage Reimbursement Rate Policy?
Just when you had the standard mileage rates memorized, the IRS has announced new rates for 2016. As a reminder, businesses with personnel policies related to mileage reimbursement, should update their policies immediately to reflect this change. An easy way to avoid annual policy updates is to add a provision that the employer’s mileage reimbursement rate will be consistent with the IRS rate without reference to a specific number. The policy should also require the employee requesting reimbursement to maintain a valid driver’s license and insurance and to submit a written request for travel reimbursement.
“The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile,” per the IRS. These costs have decreased recently with the price of oil. So, the IRS has dropped the rate 3.5 cents, from 57.5 cents to 54 cents per mile for 2016.
According to the IRS, “Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rate.” But, that means your business must track gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) for that portion of the total miles driven that are business miles. To simplify the calculation, most businesses use the optional standard mileage rate to determine the deductible costs of operating an automobile for business purposes and to reimburse employees for mileage. The formula is simple: multiply the number of miles traveled for business purposes by the rate. Using the reduced rate of 54 cents will save businesses about 5% in 2016.