Each year, the IRS updates its mileage rates for tax deduction purposes. Sometimes the rate will increase, sometimes it decreases. As of January 1, 2020, the mileage rates for cars, vans, pickups and panel trucks are as follows:
- $0.575 per mile driven for business use
- $0.17 per mile for trips taken on for medical purposes
- $0.17 per mile for moving (however, be aware of new rules)
- $0.14 per mile driven in the service of charitable organizations
The rate per mile is down by one half cent compared to last year (57.5 cents in 2020 compared to 58 cents in 2019). The details of the IRS standard mileage rates for 2020 can be found at the IRS website.
The IRS mileage rate for business
The mileage rate of $0.575 per mile for business is used for cars, vans, pickups and panel trucks. While the IRS provides the mileage rate each year, employees may be required to use another rate determined by their employer.
An employer has a choice whether they will reimburse employees for costs incurred when the employee uses their personal vehicle for work related purposes. It is also up to the employer to determine what that rate will be or what formula they may use to reimburse that employee. The employer, if choosing to reimburse the employee for costs associated with using their personal vehicle for business related purposes, may select tracking overall expenses when reimbursing their employee.
If an employer reimburses their employee more than the mileage rate determined by the IRS, the employee is subject to income tax on the amount above the IRS rate.
For self-employed individuals or business owners, the rate set forth by the IRS can be used to deduct that amount from taxable income.
The IRS mileage rate for medical, charity and moving purposes
As is normally the case, the rates for activity other than business purposes are different in 2020. For medical purposes, the mileage rate is $0.17 per mile. For moving purposes (allowable only for Armed Forces on active duty) is $0.17 per mile. For service of charitable organizations, the mileage rate is $0.14 per mile.
Is the IRS mileage rate the only method for reimbursement?
There are several methods of calculating expenses for the purpose of reimbursement. One way is to use the IRS mileage rate. This rate is available for, employers, self-employed and business owners.
If an employer wishes to use another method to calculate expenses incurred by employees for reimbursement, they are welcome to do so. For self-employed or business owners, the option exists between calculating base on the mileage rate as well as calculating general expenses associated with operating a vehicle used for business purposes. If calculating based on the mileage rate, anything above the rate is not tax deductible.
It’s important to note that reimbursement for moving expenses is no longer considered tax deductible (with the exception of those in the Armed Forces on active duty who are required to move under orders). This change was a result of the passing of the 2017 Tax Cuts and Jobs Act (TCJA).
Properly tracking mileage
For employers, employees, self-employed, contractors, freelancers and business owners, properly tracking mileage can be a time-consuming chore. Rather than take the additional time and effort to manually track and calculate mileage rates, anyone can use the smart phone app by TripLog. By using the TripLog app, those who need to track and calculate mileage can do so in an affordable, easy-to-use app.