When the IRS Rate Changes Midyear, How Do You Calculate Mileage Reimbursement? 

You’ve made it halfway through the year, but the standard mileage rate just changed! How do you calculate mileage reimbursement? There are several ways to go about it, and the best one will depend on your situation and how much you want to simplify your tax return preparation. Let’s look at what a midyear increase in the standard mileage rate means for your deduction and how to handle it correctly when reimbursing employees.

What Is The Standard Mileage Rate?

The standard mileage rate is a set amount per mile that you can use to reimburse your employees for their expenses when they drive their own vehicles for work. The rate factors in the cost of gas, maintenance, depreciation, and other costs associated with operating a vehicle. These rates are intended to be updated annually by the Internal Revenue Service (IRS). 

With a few exceptions, reimbursing employees at the standard mileage rate is optional. While a business can reimburse employees more per mile than the standard mileage rate, many companies opt to use the rate to determine how much they will reimburse employees who use their personal vehicles for business travel. Using the standard mileage rate has the benefit of being simple, accurate, and transparent. Unlike reimbursing for actual expenses which requires an employee to keep track of every expense associated with using their vehicle for business reasons, it streamlines the reimbursement process for everyone involved. 

Why Did The IRS Change The Standard Mileage Rate In 2022

Typically, the IRS will announce the standard mileage rate for the next year in December, and that rate will remain for the entire year. However, that isn’t always the case. In December of 2021, the IRS announced that the standard mileage rate for 2022 would be 58.5 cents per mile; however, on June 9th of 2022, they announced they would raise the rate to 62.5 cents per mile for the final six months of the year, beginning on July 1, 2022.

This increase followed a record-breaking increase in fuel costs as average national gas prices surpassed $5/gallon, and in some states the price exceeded $6/gallon. In response to the increased financial burden faced by those using a vehicle for business reasons, the IRS increased the amount per mile that could be reimbursed.

2022 isn’t the only time that the IRS has increased the standard mileage rate in the middle of the year, and much like the most recent instance, the driver for making this decision usually has something to do with fluctuating gas prices. Halfway through 2011, the IRS increased the standard mileage rate by 4.5 cents after the national average for gas increased by almost a dollar, and in 2008, they increased the rate by 8 cents—you can probably guess why. The last time in recent history they increased the rate midyear was 2005, and that was in response to Hurricane Katrina. 

How Does a Midyear Standard Mileage Rate Increase Affect You?

While an increase of a few cents may seem minuscule, if you have numerous employees who frequently travel for work, it can add up quickly. For the employees who are spending their own funds to maintain and fuel up their vehicles, an increase of a few cents—especially when the national average for the cost of a gallon of gas hits almost five dollars—can make a huge difference in their personal financial situation.        

Knowing how to calculate mileage reimbursement accurately isn’t just important for your employees, but it is also important for business owners. If you calculate the reimbursement incorrectly because of a midyear change in the standard mileage rate, you risk over- or under-paying employees. If you overpay, the IRS will only allow you to deduct up to the standard mileage rate, while if you underpay, you can negatively affect employees and miss a possible tax deduction.

How Do You Calculate Mileage Reimbursement After A Midyear Change?

If you’re wondering how to calculate mileage reimbursement after a midyear change, the answer is pretty simple. The rate you’ll use to reimburse someone for their travel expenses is dependent on when they took the trip, not when you issued the reimbursement. For example, when calculating mileage reimbursements in 2022, ensure that trips made before July 1st are calculated at a rate of 58.5 cents per mile. If they are made on or after that date, you will use the updated rate of 62.5 cents per mile.

How Can You Be Sure You’re Reimbursing Employees Correctly?

As an employer, you are responsible for making sure your employees are reimbursed for business expenses incurred while working for you. This includes mileage driven in their personal vehicle for business purposes. When you’re attempting to calculate mileage reimbursement, typically, there are only two numbers that matter: the standard mileage rate and the number of business miles your employee drove. Most years, because the standard mileage rate doesn’t typically change, this is simple, but with a midyear increase, there are two standard mileage rates to factor into your calculations.

Because the new rate is only effective for half of the year, you also have to ensure you’re using the correct rate based on the date the trip was made. This makes tracking not only how many miles your employee drove important but also when. There are numerous ways to ensure your mileage tracking is accurate, such as using a log book or a mileage tracking app. Whichever way you choose to have employees track their miles, ensure all employees are familiar with it and up to date with expectations.

Be Ready for Change with SureMileage

Regardless of what changes may come, it is vital that you are able to quickly and accurately calculate mileage reimbursement. By using SureMileage, you can eliminate the costs associated with inaccurate expense reports and mileage inflation. SureMileage calculates the distance between the beginning and ending point of each trip rather than tracking employees’ driving and then verifying it after the fact. The method prevents detours, non-work related errands, and inflated mileage estimates from appearing in their mileage expense reports.

Utilizing the SureMobile app, employees submit trips for reimbursement within minutes. Once submitted, our software handles the approval process before a reimbursement is issued. Since SureMileage integrates with all major payroll and accounting systems, the reimbursement process is seamless from beginning to end. The result is time saved and happier employees who know they’re being reimbursed correctly. With these tools at your disposal, calculating accurate reimbursements has never been easier!

No matter how many times the IRS standard mileage rate changes in the future, be ready with expense reimbursement software that helps your company save time and money. To better manage your mileage reimbursement process, reach out to CompanyMileage.