The federal government has decreased the allowable per-mile reimbursement for employees who drive their vehicles for business and using their vehicles for medical care and moving expenses.
Employers may reimburse their employees for operating an automobile for business, charitable, medical, or moving expense purposes. They can calculate those reimbursements using a variety of methods including: travel days, miles, or the fixed-rate allowance.
Each year the Internal Revenue Service evaluates the Standard Mileage Rate to determine whether the rate is reasonable based on driving costs and whether the rate should be increased, decreased or remain the same. The IRS takes into account costs such as the price of gasoline and oil and other expenses including insurance and repairs.
New published rates include:
- The standard business mileage rate for auto expenses has decreased to 54 cents per mile for 2016 (from 57.5 cents per mile in 2015).
- The rate for charitable uses remains the same at 14 cents per mile.
- The rate for driving for medical care has decreased to 19 cents per mile for 2016 (from 23 cents per mile for 2015).
- The rate for deductible moving expenses using an automobile has decreased to 19 cents per mile for 2016 (from 23 cents per mile for 2015).
The maximum standard automobile cost under a fixed-and-variable-rate (FAVR) allowance method has decreased from $28,200 for 2015 to $28,000 for 2016 (excluding trucks and vans). The standard cost under a FAVR allowance for trucks or vans has increased from $30,800 for 2015 to $31,000 for 2016.
If the allowance paid to an employee exceeds the amount allowed by the federal government, the excess amount must be reported as wages and is subject to income tax withholding and payment of Social Security, Medicare and federal unemployment taxes.
For more about “Business Use of Car,” visit the IRS website at: https://www.irs.gov/taxtopics/tc510.html or contact the experts at BCN if we can answer your employment questions, including those about employee reimbursement policies and current guidance and legislation.
Susanna Achatz, Payroll Manager