It’s that time of year again. The nights are getting longer, the holiday ad bombardment has begun, and the IRS is preparing to announce the standard mileage rate for 2024. With the economic realities of the last year fresh on our minds, we can’t help but wonder what the 2024 rate will be.
For 2023, the standard mileage rate was 65.5 cents per mile. This was an increase from 2022’s rate of 62.5 cents per mile, itself a rare mid-year increase of the 58.5 cents per mile rate that was set at the beginning of 2022. Clearly, the last few years have been tumultuous when it comes to the costs of owning and operating a vehicle, especially with regards to gas prices, with the mileage rate skyrocketing accordingly. But will this pattern continue in 2024?
How Does the IRS Determine the Standard Mileage Rate?
Every year, the IRS calculates the standard mileage rate for the upcoming tax year by analyzing how much it costs to own and operate a vehicle in the US. A common misconception about the standard mileage rate is that it’s directly tied to fluctuations in gas prices. Although gas does factor into the final calculation, a CompanyMileage analysis found that depreciation makes up the largest portion of vehicle ownership costs, at about 45%. Fuel prices account for about 30% of the overall cost, insurance for 12%, taxes and registration for 7%, and maintenance and tires for 3% each.
Factors Affecting the Rate in 2024
Here are the biggest trends to consider when trying to predict the rate for next year:
Infamously, 2022 saw huge spikes in gas prices, with the average cost of fuel hitting over $4.50 in the US in the summer of that year. Accordingly, the IRS increased the mileage rate at the halfway mark of the year. Retail gas prices fell some in 2023 (even though the rate didn’t), but according to short-term projections by the U.S. Energy Information Administration (EIA), retail prices are projected to rise again in 2024. Although gas prices aren’t expected to hit the highs of 2022, they are projected to sit at an average of about $3.61 a gallon next year, up from this year’s average of $3.55.
However, the EIA’s projection cannot fully account for how the war in the Mideast between Israel and Hamas might impact the oil industry. While the conflict has not yet impacted oil supply, uncertainties around the conflict could put pressure on oil prices in the months to come, creating some unpredictability that could inflate prices next year.
Insurance and Maintenance
Insurance prices, as noted above, reflect about 12% of vehicle ownership costs analyzed by the IRS for the standard mileage rate. As CompanyMileage has reported previously, car insurance costs soared this year, up about 19% from 2022. While some states are working to mitigate rising insurance costs, it’s unclear if this will be enough to prevent that cost from continuing its upward trend into 2024.
One factor that plays into insurance costs, as well as into depreciation—which as you’ll remember account for 45% of vehicle costs—is the cost of repairing a vehicle. This cost has also started to rise, with motor vehicle repair prices increasing about 20% from 2022 to 2023, according to the consumer price index in June of this year. This has been caused by widespread shortages in the industry, from shortages in vehicles and vehicle parts due to various supply chain issues, to an industry-wide labor shortage. Like overall insurance costs, it’s unclear if repair costs will start to go down next year, and certainly unlikely that they will decline at the rate they spiked in the last two years.
While 2023’s standard mileage rate does sit at an all-time high of 65.5 cents per business mile, don’t count out the possibility of it rising another couple of cents in 2024. Because of the way the rate spiked between 2021 and 2023, we don’t predict another drastic increase. However, due to the likelihood of increased fuel prices and the possibility of high insurance and maintenance costs to continue into the new year, we predict that the IRS will see fit to raise the rate by a cent or two, perhaps to about 67 cents per mile, and that you might want to plan your 2024 budget accordingly.
As fuel and other costs react to national and world events in 2024, CompanyMileage’s rate calculator is available to help business owners determine appropriate rates for their employees based on prices in your area.
Manage Mileage Reimbursement With CompanyMileage
With 2024 coming at us fast, business owners who employ a large number of mobile employees should be thinking about how to best handle mileage reimbursement for their employees going into the new year. Let CompanyMileage help with our suite of solutions designed specifically to make mileage reimbursement easy, efficient, and accurate.
Our mileage and expense reimbursement software, SureMileage, uses a unique point-to-point calculation method to determine the mileage between the beginning and end points of each work trip, eliminating the potential for non-work related travel being recorded on mileage logs. All employees have to do is enter a few points of data on their smartphones using the SureMobile app. Once submitted, all expense requests are moved through a customizable, automated approval process. SureMileage integrates with major accounting and payroll systems, as well, making the entire reimbursement process as seamless as possible.
Whatever standard mileage rate the IRS sets for 2024, with CompanyMileage’s help, you can be ready for anything, and even save some money in the process. Request a demo today to learn how streamlining the mileage reimbursement process saves our customers up to 30% on mileage reimbursement expenses today!