For companies who provide employees with mileage reimbursement for the use of their personal vehicles for work-related driving, this year has been especially confusing and stressful. When the IRS set the initial rate for 2022 at 58.5 cents per mile, they couldn’t have anticipated how Russia’s invasion of Ukraine combined with rising inflation would cause gas prices—along with many other vehicle costs—to skyrocket. 

After several months of record breaking gas prices, the IRS finally relented and increased the standard mileage rate by four cents for the second half of the year. The new business mileage rate of 62.5 cents applies from July 1st to December 31st, 2022, while the previously established rate will still apply for work-related mileage recorded during the first half of the year. 

When even the IRS is finding it difficult to decide on a standard mileage rate, you know businesses are facing a lot of hard questions. What is a fair rate to reimburse your employees at? Should you abide by the rates the IRS has set, or should you determine a rate for yourself (the IRS’s rate is optional in most instances, after all)? 

CompanyMileage has created a tool to help you navigate this confusion. Whether you’re wrestling with what your company should set its mileage reimbursement rate to in order to properly compensate employees, or you’re trying to anticipate any future rate increases or decreases for more reliable budgeting, our rate calculator can provide you with helpful insights. 

What Should Your Mileage Rate Actually Be?

Determine an estimated mileage rate based on gas prices in your area.

How Mileage Reimbursement Rates Are Determined

At the end of each year, the IRS conducts a study to determine what the average costs for owning and operating a vehicle should be for the upcoming year. While there tends to be some correlation between the mileage rates and gas prices, a variety of measurements are weighed to determine the cost of owning and operating a vehicle. 

A CompanyMileage analysis found that fuel accounts for about 30% of overall vehicle costs. Insurance accounts for 12%; licenses, registration and taxes for 7%; and tires and maintenance for 3% each. The biggest factor in our vehicle cost analysis, depreciation, represented 45% of the overall cost.

CompanyMileage’s Mileage Rate Calculator

We used the above findings from our analysis as the basis for our rate calculator. By using the initial rate the IRS set for 2022 as a starting point, we were able to determine how the IRS interpreted vehicle costs such as maintenance, depreciation, insurance and taxes. With all of these costs reasonably accounted for, you have the ability to calculate what the mileage reimbursement rate should be based on gas prices in your area. Given that fuel varies drastically from day to day and state to state, finding a rate that is more appropriate to your business’s circumstances is incredibly helpful. 

For instance, if you operate in a state such as California where it’s not uncommon to see a price per gallon above $6.00, a more appropriate mileage reimbursement rate for employees would be closer to 70 cents per mile. (However, we should mention that if you opt to reimburse employees at a rate higher than the IRS standard mileage rate, they’ll consider the excess to be wages.) If you operate in a state such as Georgia or South Carolina where gas prices are closer to $4.00, the IRS standard mileage rate is right on the money. In fact, as gas prices decline, you may find the IRS rate to be too high. 

Take Control of Your Mileage Reimbursement Program

With the right tools (and the right mileage rate), you can manage your mileage reimbursement program more accurately and efficiently. SureMileage by CompanyMileage offers you a streamlined, reliable approach to employee mileage tracking and reimbursement. Employees simply report their starting and ending points, and the system calculates the most direct driving route between them and records the mileage. The app then calculates the expenses to be reimbursed based on the mileage rate you’ve specified. At no point will employees need to report odometer readings or maintain a mileage log. 

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. If you’re ready to upgrade your mileage reimbursement process, request a demo with CompanyMileage today to learn more!

Disclaimer

The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. CompanyMileage does not accept responsibility for the accuracy of the information herein, nor for any interpretation or application of this information. There can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation at hand. You should consult with a professional advisor familiar with your particular factual situation for advice concerning specific tax or other matters before making any decision. COMPANYMILEAGE DISCLAIMS ALL LIABILITY AND RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS IN THE CONTENT CONTAINED HEREIN, WHICH IS PROVIDED “AS IS”, WITH NO GUARANTEES OF COMPLETENESS, ACCURACY OR TIMELINESS, AND WITHOUT REPRESENTATIONS, WARRANTIES OR OTHER CONTRACTUAL TERMS OF ANY KIND, EXPRESS OR IMPLIED.