At the beginning of March 2022, we saw a spike in the average cost of gas all across the country. For the first time since 2008, it surpassed $4 per gallon, a number that while shocking was not entirely unexpected. In response to Russia’s war on Ukraine, the global community has issued severe sanctions meant to cut off Russia’s ability to earn revenue from the export of crude oil. The result has been a nearly 41-cent increase in gas prices in the past week. In fact, on Friday, March 4th, gasoline prices saw the second largest daily spike and diesel saw its largest daily increase ever.
The trend of gas prices right now shares many similarities to past occasions when the IRS deemed it necessary to adjust the standard mileage rate. If history repeats itself, businesses could wind up paying more in mileage reimbursement for the rest of the year.
2008: The Last Time Gas Prices Rose to $4+/Gallon
The last time oil prices rose this quickly was in 2008, and it prompted the IRS act quickly, implementing a mid-year rate increase of 16%. This is how it went down.
- On June 8, 2008, the price of gas rose to $4/gallon for the first time ever.
- On June 23, 2008, the IRS announced an increase in the optional standard mileage rates for the final six months of 2008.
- On July 17, 2008, an all time record high for gas prices was set at $4.103 per gallon.
In 2008, the rate increased eight cents from 50.5 cents per mile to 58.5 cents per mile for the 2nd half of the year. What exactly led to the spike in gas prices in 2008? It’s difficult to point to just one factor; tensions in the Middle East, increased global demand spurred on by China and India, reported declines in oil reserves and financial speculation all played a role.
2011: The Last Mid-Year Standard Mileage Rate Increase
The last time the IRS chose to adjust the standard mileage rate in the middle of the year was also due to skyrocketing gas prices. In 2011, Arab Spring protests led to several conflicts in the Middle East and North Africa, including the 2011 Egyptian Revolution and the 2011 Libyan Civil War. Along with tightening sanctions against Iran, these factors drove gas prices back up to numbers approaching $4/gallon.
In response, the IRS raised the rate from 51 cents per business mile to 55.5 cents in June 2011, a hike of 4.5 cents—much less dramatic than the adjustment in 2008.
Will the Standard Mileage Rate Increase in 2022?
If we look at these two previous instances when the IRS increased the standard mileage rate, we can find some key similarities. Like in 2008, average gas prices have surpassed $4/gallon, and like in 2011, it’s due to an international conflict the IRS could not have predicted when it first announced the annual rate.
However, the IRS already expected the cost of operating a vehicle to increase this year, and for that reason, they set the 2022 rate at 58.5 cents per mile, the same number as the 2008 adjusted rate. This means if they do decide to increase the rate this year, the adjustment likely won’t be as drastic as in past years.
That being said, even a small increase in the standard mileage rate will add up over time as you reimburse employee mileage. If the IRS raises the rate by just one cent, that gives every employee who drives 10,000 miles an extra $100. If you have 300 employees who travel on a daily basis, this small increase results in $30,000 more spent on mileage reimbursement than you previously budgeted for.
Now is the TIme to Solve Your Mileage Reimbursement Management Issues
Mismanagement of the mileage reimbursement process costs organizations thousands of dollars each year, and that’s before you even factor in the costs that could come from a mileage rate increase. SureMileage by CompanyMileage helps you save money by using a different approach to calculating mileage reimbursement.
With SureMileage, employees report their starting and ending points, and the system calculates the most direct 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 use a mileage log. CompanyMileage customers save up to 30% on mileage reimbursement management costs.
In uncertain times, you need a reliable system that keeps everything organized and ensures avoidable mistakes won’t affect your bottom line. Request a demo with CompanyMileage today to learn how our mileage and expense management platform can help you in 2022.