IRS Responds to High Gas Prices with New Mileage Rate

Due to rising gas prices, on June 9, 2022, the Internal Revenue Service issued Announcement 2022-13 increasing the optional standard mileage rate for the second half of 2022 from 58.5 cents per mile to 62.5 cents per mile. The new rate will be effective for traveling beginning July 1, 2022, through December 31, 2022. The old rate of 58.5 cents per mile will remain in effect through June 30, 2022.

Understanding the Standard Mileage Rate

The standard mileage rate is a national average rate taking into account a variety of factors including fuel costs, insurance, depreciation, and other fixed and variable costs. It can be used to compute the deductible costs of operating a vehicle for business rather than tracking actual costs. The rate is also used as a benchmark by many businesses to reimburse their employees for mileage. Employees have the option to track actual costs for using their vehicle for business use rather than using the standard mileage rates.

New Rates and Itemized Deductions

Under the Tax Cuts and Jobs Act of 2017, any miscellaneous itemized deductions, including unreimbursed employee travel expenses, that are subject to 2% of adjusted gross income are suspended for tax years beginning after December 31, 2017 and before January 1, 2026. Therefore, the revised business standard mileage rate provided in Announcement 2022-13 cannot be used to claim an itemized deduction for unreimbursed employee travel expenses during the suspension period.

However, this suspension does not apply to deductions for expenses that are deductible in determining adjusting gross income. For example, members of the armed forces, state of local government officials paid on a fee basis, and certain performing artists are entitled to deduct unreimbursed employee travel expenses as an adjustment to total income, not as an itemized deduction, and therefore may used the revised business standard mileage rate as provided in this announcement.

Rates for Medical/Moving Expenses & Nonprofits

The new rate for deductible medical or moving expenses will be 22 cents effective July 1 st increasing 4 cents from 18 cents per mile at the beginning of 2022. The 14 cents per mile for charitable organizations will remain unchanged as it is set by statute.

Summary

The standard mileage rate is usually changed only once during the year, usually at the beginning. Midyear increases are uncommon and the last occurred in 2011. This year’s midyear increase can be attributed to the unprecedented rise in gas prices we have all seen lately.

Please contact your Louis Plung advisor with any questions about the employee retention credit qualification requirements. [email protected].

For a quick overview of the new rates, see the grid below.