The Internal Revenue Service (IRS) has updated the optional standard mileage rate in 2023 to 65.5 cents per mile for business travel, an increase of 7 cents from 58.5 cents per mile set for the first six months of 2022 and 3 cents higher than the 62.5 cents per mile that was set by the IRS for the last six months of 2022.
This announcement, made on December 29, 2022, is an update on the standard mileage rates for conventional vehicles (cars, vans, pickups or panel trucks) per business mile driven. It has also kept the midyear increased standard mileage rate of 22 cents per mile for medical or moving miles driven that was announced in June of 2022, an increase of 4 cents from the rate in place for the first half of 2022. The rate for charitable service miles driven, which was set by Congress, remains 14 cents per mile for 2023.
This adjustment in the standard mileage rate aligns with the fluctuating costs of owning and operating a vehicle in the US in 2023. Rising inflation, supply chain interruptions and labor shortages are all contributing to increases in vehicle costs related to maintenance, insurance premiums and fuel. According to AAA’s Your Driving Costs report, all of the categories they track to calculate the average cost of owning and operating a vehicle increased in 2022 compared to the year prior. Two of the biggest increases were seen in fuel expenses and auto insurance premiums, two trends that could continue into 2023.
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, depreciation, represented 45% of the overall cost.
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, the 3 cent adjustment means $300 more in their pocket. While $300 seems modest at an individual level, it adds up quickly for companies reimbursing dozens or hundreds of 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.
You can read the full IRS announcement at this link.