Increase in the Optional Standard Mileage Rate Provides Relief for Drivers

On June 9, 2022, the Internal Revenue Service (IRS) announced that it will boost the optional standard mileage rate for business travel for the last six months of 2022. Effective July 1, 2022, the rate will be 62.5 cents per mile, up 4 cents from the rate set at the beginning of the year. This rate applies to all conventional vehicles, such as cars, vans, or pick-up trucks.

The standard mileage rate for medical or moving (only applicable to U.S. Armed Forces on Active Duty) also increased by 4 cents, which is now 22 cents per mile. As for charitable service miles, the rate will not change because it is set by Congress. It will remain 14 cents per mile for the remainder of the year.

Standard Mileage Rate

The federal government uses the standard mileage rate as a key benchmark for reimbursing its employees via their tax returns for the mileage expenses they pay out-of-pocket. Many businesses abide by this rate as well, even though it is optional.

Typically, The IRS sets the rate in the fall prior to the year it takes effect. It’s uncommon for the standard mileage rate to change midyear, but it has happened twice before in the last decade and a half. The rate increased dramatically in 2008 from 50.5 cents per mile to 58.5 cents per mile. Three years later, in 2011, it rose midyear by 4.5 cents per mile. 

Both times in the past and the current adjustment were caused by skyrocketing gas prices. On the day the IRS made the announcement, Gas Buddy reported the national average price of gas had reached $5 per gallon. It now costs over one dollar more than the average price per gallon in January of 2022 when the most recent rate took effect. 

Standard mileage rates are determined by annual studies conducted on the costs of operating a vehicle. Although gas prices of course represent a large portion of vehicle costs (almost a third), the main factor is actually depreciation. Other components are also considered, such as insurance, licensing, registration, taxes, and maintenance. 

Rate Increase Provides Relief for Drivers

IRS Commissioner Chuck Rettig noted that the government increased the rate “to help taxpayers, businesses, and others who use this rate.” This step can provide significant relief to those who drive vehicles for work. For example, if someone drives 15,000 miles a year, the new rate will mean an additional $600 when reimbursed.

It’s important to note that businesses are not required to adopt this new rate, which is used to calculate the deductible costs of operating a vehicle for the purpose of business. Businesses have the option of tracking actual costs instead. Because that method is often tedious and challenging, many companies opt to use the IRS rate, even though it usually creates an additional expense for them. Taxpayers do reserve the right to get reimbursed for the actual costs of operating their vehicle instead of using the standard mileage rate.

Do you have questions about the new increase in the Optional Standard Mileage Rate? Our team of payroll experts at ASAP Payroll can help. Request a free quote today or contact us to learn more about our professional payroll services.

The following chart was included in the original IRS announcement.

Amounts are in cents per mile.