On June 9th of this year, with the cost of gas soaring, the IRS announced they would be increasing the standard mileage rate for business travel by 4 cents for the final six months of the year. According to AAA, five days after the rate increase was announced, the national average gas price hit an all-time high of over $5 per gallon. However, the national average gas price has dropped significantly, sitting below $4 a gallon as of mid-August, leaving many business owners questioning whether or not they should lower their mileage reimbursement rate.
The States of Gas Prices
After experiencing a rapid increase at the start of the year, hitting its peak on June 14th, the average national gas price has dropped every day since. What is causing this sudden rapid decrease? There isn’t a simple answer to that question; however, two factors play a significant role: a lack of demand and declining oil prices.
According to the Energy Information Agency (EIA), the demand for gas has dropped significantly over the last few months down to levels we haven’t seen since the height of COVID restrictions in July of 2020. With lower demand, gas prices are forced down. The other reason the cost of gas has dropped is that oil prices have plummeted from where they were earlier in the year following the Russian invasion of Ukraine. In March, West Texas Intermediate crude, used as the benchmark for oil prices in the U.S., hit almost $130 per barrel. Today, the price per barrel has fallen to $88.11.
Is The Updated Rate Too High For You?
Answering that question is a bit complicated and depends on where you live. While the national average of gas has dropped, there are still many areas where gas prices are over $4 a gallon. In places like this, the updated standard mileage rate of 62.5 cents/mile may be best, but if you’re in a place like Texas, where the cost of gas in some areas is below $3.30, you may be reimbursing employees too much.
When determining your reimbursement rate, gas prices aren’t the only factor to keep in mind. It’s also essential to ensure you’re following state laws. While no federal laws require businesses to reimburse employees at the IRS rate, a few states such as California, Illinois and Massachusetts require it by law. Outside of those states, employers generally have the freedom to choose their own rates as long as they don’t reimburse so little that it drops employees under the federal minimum wage. The tricky part is determining a rate that satisfies your financial responsibility to your employees without forcing you to blow through your budget.
Use Our Calculator to Find the Best Rate for Your Company
With fuel costs still facing much uncertainty in the near future, it can be challenging to know how much to reimburse your employees for the miles they drive. To help you figure out what the best reimbursement rate is for your company, CompanyMileage has created a mileage rate calculator. Our tool follows the same methodology the IRS uses to calculate their rate, factoring in the cost of gas with other vehicle ownership and maintenance costs. To find the best rate for you, simply input the cost of gas in your area.
Manage Your Miles Better With CompanyMileage
Whether you’re trying to determine the rate you should reimburse employees at, tracking the miles they drive, or creating a more efficient reimbursement process, CompanyMIleage is here to help. At CompanyMileage, our goal is to make the process of tracking and reimbursing employees for the work-related miles they drive as simple and affordable as possible.
Reach out today to set up a demo and see how CompanyMileage can help you manage your miles better.
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.