The Internal Revenue Service (IRS) has updated the optional standard mileage rate in 2021 to 56 cents per mile for business travel, a decrease of 1.5 cents from 57.5 cents per mile in 2020.

This announcement, made on December 22, 2020, is an update on the standard mileage rates for conventional vehicles (cars, vans, pickups or panel trucks) per business mile driven. It has also updated the standard mileage rate to 16 cents per mile for medical or moving miles driven, down one cent from 2020. The rate for charitable service miles driven, which was set by Congress, remains 14 cents per mile for 2021.

This adjustment in the standard mileage rate also aligns with the change in fuel prices expected in 2021 compared to 2020. In 2020, a global pandemic depressing travel and high global fuel inventories resulted in an average fuel price of $2.15/gallon, well below the original forecast for the year of $2.57/gallon. In 2021, the US Energy Administration (EIA) anticipates a modest improvement for oil markets, projecting the average cost of a gallon of gasoline to come in around $2.22. Other costs related to owning a vehicle in the US, such as auto insurance and regular maintenance, continue to increase in 2021, though. 

The IRS calculates standard mileage rates following an annual study of the costs associated with operating a vehicle. The mileage rates tend to follow the price of gas, but a variety of measurements are weighed to determine the cost of owning and operating a vehicle. In fact, a CompanyMileage analysis found that fuel accounts for about 30% of overall vehicle cost. Insurance accounted for 12%; licenses, registration and taxes for 7%; and tires and maintenance 3% each. The biggest factor in our vehicle cost analysis was 45% of the overall cost represented by depreciation.

Even small changes in the standard mileage rate can represent a substantial difference at the end of the year. For an employee reimbursed at the new IRS rate for driving 10,000 miles a year, Tuesday’s adjustment of 1.5 cents means $150.00 less in their pocket. 

If the IRS rate does not adequately align with the cost of gas at the pump, employees may feel that they are not being fairly reimbursed, and they will be more likely to take action to self-correct the issue and keep a few extra dollars in their own wallet. While $150 seems modest at an individual level, it adds up quickly for companies reimbursing dozens or hundreds employees. 

The updated mileage rates, with some major considerations, are optional to adopt. While businesses have the option of using a different methodology, many choose to use the IRS rate because it can be challenging to create a consistent method of calculating and tracking the cost of vehicle usage across a large fleet of mobile employees.

SureMileage by CompanyMileage addresses these issues by using a different approach to calculating mileage reimbursement. With SureMileage, employees report their starting and ending points, and the system calculates the most expedient driving route between them. The app then calculates the expenses to be reimbursed based on those predetermined rates. At no point will employees need to report odometer readings or maintain a mileage log. With SureMileage, your business will be able to significantly cut down on instances of inaccurate reporting and reimbursement fraud. 

Features such as an integrated Address Book and on-the-fly rate changes make it easy for employees to input their miles, adjust rates based on the vehicle used and save new destinations for future use. 

Don’t forget to communicate the new IRS mileage rates with your employees. To better manage your mileage reimbursement process, reach out to CompanyMileage today.