2016 IRS Mileage Rate & what it means for your organization

“What goes up must come down” is about gravity not gasoline, but the lowest fuel prices in years no doubt contributed to the decision by the Internal Revenue Service to reduce the optional standard mileage rate for 2016.

The IRS said Thursday that beginning January 1, 2016, its standard mileage rate for the use of a personal vehicle for business purposes will be 54 cents per mile driven. That’s down 3.5 cents – and more than 5 percent – from the 2015 rate. In fact, it’s the lowest the rate has been since 2011, when it was 51 cents. The agency also cut the rates for miles driven for medical and moving purposes as well as those driven in the service of charitable organizations.

“The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile,” the IRS said in making the announcement. “The rate for medical and moving purposes is based on the variable costs.”

A few pennies adds up to tens of thousands of dollars
According to AAA, the national average price for a gallon of gas is poised to slip below $2.00. The organization expects that on New Year’s Day, gas will cheaper than on any Jan. 1 since 2009. AAA said, “These lower gas prices have been largely driven by the falling price of crude oil, which begins this week at its lowest mark in more than five years. U.S. average gas prices are 79 per gallon less than the 2015 peak … .”

Just as they are for gas prices, changes in the IRS standard mileage rate usually are expressed in pennies. But those pennies add up. For an employee reimbursed at the IRS rate for driving 10,000 miles a year, Thursday’s adjustment means $350 less in their pocket. Companies reimbursing 100 employees at that IRS rate for driving similar distances will have $35,000 less to pay out and $35,000 less in mileage reimbursements to claims on their taxes.

A new approach to mileage reimbursement
It may not happen overnight, but eventually employees will start to notice there is a little less in their mileage reimbursement checks. Some no doubt will be tempted to make up that “lost” revenue by exaggerating distances and claiming trips not driven. SureMileage by Company Mileage addresses these issues by using a different approach to calculating mileage reimbursement.

With it, employees report their starting point and destination and the system calculates the driving distance between them. Rather than verifying the miles that were driven, it calculates the expenses to be reimbursed. SureMileage has an integrated address book – corporate and personal – and every location is given a name. To add a new location, employees can add it to the app and it will automatically populate. Changing the mileage rate is easy. Administrators log in to the SureMileage control panel, select Company Settings, and SureMileage Setup. Assign Rates is the second tab. Just input the new rate there.

Remember to communicate even this small change to employees. And consider taking the opportunity to remind them about your mileage reimbursement policies as well as the safeguards you have in place to ensure accuracy.

Learn more about the recent IRS announcement on their website