What Will the IRS Standard Mileage Rate Be in 2021?

We’re quickly approaching the end of 2020 (can you believe it?), and like the rest of you mileage expense enthusiasts, we’re just as excited about the upcoming announcement of the 2021 IRS standard mileage rate. They usually announce it sometime in December, but we start speculating on what it’s likely to be way before that. 

As you may already know, the IRS analyzes several different metrics to determine the average, annual cost of owning and operating a vehicle for the upcoming year. 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.

Generally though, the standard mileage rate tends to increase or decrease complementary to annual fuel prices. 

Standard Mileage Rate Vs. Fuel Prices

CompanyMileage compared annual fuel prices against the IRS standard mileage rate to see how these two values have changed since 2014. 

For the most part, following fuel prices will give you a good indication of whether the mileage rate is likely to increase or decrease. Of course, there are years when fuel price has not proven to be such a good metric. In December 2019, the average cost of a gallon of gas in 2020 was expected to be around $2.57. Over the course of the year, a global pandemic depressing travel and high global inventories resulted in an average fuel price of $2.15/gallon, well below the original forecast. Obviously, anticipating fuel prices is not an exact science. 

When there is more disparity between the mileage rate announced by the IRS and the cost of gas in a year, you can expect employees to adjust their mileage expense reports accordingly. One year in recent memory where this was the case was 2017. The standard mileage rate dropped half a cent from the previous year to 53.5 cents, but the cost of gas rose by about 27 cents to average $2.42/gallon. In 2015, the cost of a gallon of gas was about the same, but that year, the standard mileage rate was 57.5 cents, four cents higher for each business mile driven. You can expect employees in 2017 were more likely to inflate trip mileage to compensate for their perceived under-reimbursement.

So, What Does the Future of Fuel Foretell?

If we look at oil futures for 2021, we can expect a modest improvement in the oil market, especially in the latter part of the year. According to the US Energy Information Administration (EIA), in the next few months, spikes in COVID-19 cases globally could reduce the demand for oil, decreasing retail price at the pump. However, oil inventories are expected to continue to fall during the same period. 

While the forecast remains subject to much uncertainty due to COVID-19, EIA expects global demand for oil to rise in 2021, causing some upward oil price pressures. Currently, Brent crude oil sits at about $40 per barrel, but EIA forecasts Brent crude oil prices will average $47 per barrel in 2021. This will cause gas prices to increase slightly in 2021. 

Even though gas prices will rise slightly in 2021, the deep dive they took in 2020 was not anticipated. For that reason, the IRS standard mileage rate may have actually been a little too high in 2020. 

This creates more uncertainty regarding exactly how the IRS will handle the standard mileage rate for 2021. One thing is certain, though: if the reimbursement rate does not adequately reflect what employees believe they’re spending on work-related travel, they’ll take the initiative to correct the issue on their own. 

Get a Handle on Employee Mileage Reimbursement

CompanyMileage eliminates costs associated with mileage inflation and inaccurate expense reporting. Rather than tracking the miles employees drive and then verifying them after the fact, SureMileage calculates the mileage between the beginning and ending points of each trip. This method eliminates the potential for detours, non-work related errands and inflated mileage estimates from winding up in their trip logs. 

It only takes a few minutes for employees to submit trips for reimbursement using the SureMobile app. Once submitted, our software takes trips through your approval process before a reimbursement for their travel is issued. SureMileage integrates with all major payroll and accounting systems, so the entire reimbursement process is seamless from start to finish. 

No matter what the IRS standard mileage rate is in 2021, you want to be ready with an expense reimbursement software that will help your company save money. Join the thousands of CompanyMileage’s customers who have saved up to 30% on reimbursement expenses today. Request a demo to learn more.