What is the Standard Mileage Rate for 2021?

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In the United States, the Internal Revenue Service (IRS) has a standard mileage rate that is used to calculate deductible expenses for running a car.

The rate is specifically computed to help people who regularly drive for business purposes to calculate their costs and then deduct them from their taxes.

The Standard Mileage Rates include the cost of running a car for business, charitable and medical purposes as well as moving to a new home.

The rate is adjusted every year, and it is determined by calculating the prevailing economic conditions and the cost of operating a motor vehicle.

The IRS will study the fixed and variable costs of running a car to come up with a standard mileage rate.

For medical and moving purposes, the IRS will calculate the variable costs every year so that it can come up with the rates to be used for that particular year.

For the year 2021, the following are the mileage rates that you use to calculate the mileage deductions on the cost of running vehicles such as cars, pickups, vans, and panel trucks used in business.

  • 56 cents for every mile business-driven
  • 16 cents for every medical or moving purposes mile driven
  • 14 cents for miles driven for a charitable cause such as visiting a charitable organisation

How Does the IRS Come Up With the Standard Mileage Rates?

For the year 2021, the rate applicable was announced by the IRS on December 22, 2020, and it will be in operation until December 2022.

The rates that will be applicable for the year 2021 have been announced by the IRS and have been in use from January 1, 2021.

The IRS takes a lot of precautions when coming up with the standard mileage.

  • It will take into consideration the statistical analysis methods to calculate the cost components of operating a vehicle.
  • It will, for example, consider the maintenance costs, the fuel costs, insurance premiums, vehicle depreciation etc.
  • It will also take into account the prevailing market prices for expenses such as insurance payments, tire replacement, vehicle repairs, fuel and oil costs, maintenance etc.

For medical and moving purposes, the IRS will take into account costs such as fuel and oil prices.

The law prescribes what the IRS will put into the rate for charitable causes.

What Is the Tax Deduction for Self-Employed Individuals?

If you are an employee or a self-employed individual that uses your vehicle for business purposes, the IRS will give you the standard mileage rates to guide you on how you can deduct your mileage from your taxes.

Sometimes an employer will use the mileage reimbursement right to reverse the employee for all the business-related travel costs.

travel expenses you can deduct
Source: IRS Publication 463 – Travel, Gift, and Car Expenses

The employee is required by law to provide sufficient evidence to prove that the mileage incurred were indeed for business purposes.

A taxpayer is not supposed to use the IRS mileage rate to deduct tax on the income if the used any depreciation method on the vehicle in the past.

Remember that the taxpayer is allowed by law to document all the actual expenses of running a vehicle and then offset them against their tax.

Alternatively, they can use the IRS mileage rate to offset the tax against the tax.

If a taxpayer is a consultant or a trainer who regularly drives to different client locations to do his work, he is required to track both the location where he is giving his services and the total miles were driven to and from the location for him to be able to calculate the mileage.

The consultant is also required by the IRS to track all the miles that he has driven with the car for personal purposes.

He will need to compute both personal and business mileage and provide sufficient evidence for the miles filed for the IRS to verify the authenticity of his claims.

Sometimes an employer will remove the hassle of logging the mileage from the employee. He does this through a scheme called employee reimbursement.

Different employers and different industries reimburse the employees for mileage covered for business purposes on personal automobiles.

The market dynamics will determine how much the employer will reimburse the employee for mileage covered for business purposes.

What Is Government Employee Reimbursement?

The government employee reimbursement is computed by an independent firm that is contracted by the government.

The rate is referred to as General Services Administration and is used to reimburse government employees if they use their vehicles for government business whenever such travel has been authorized, or there wasn’t any government vehicle available.

What Are the Vehicle Expenses Reimbursement Requirements?

For a car to qualify for reimbursement, you will need to keep a proper record of your mileage, fuel payment receipts, and any other documentation that is required for allowable expenses on your car.

If you use the standard mileage rate for 2018, you are well advised to use mileage tracking apps such as GOFAR.

The app helps you to find your engine’s sweet spot and then trains you on how to drive efficiently to reduce fuel consumption and wear and tear.

The app will also help you with issues such as:

  • Tracking the car mileage for tax deductions
  • Finding faults on your car and explaining them in plain English
  • Reminding you of car servicing schedules and insurance premiums payment
  • Linking you with the best mechanics and parts supplier in your area (currently available only in Australia).

If you failed to produce sufficient evidence for all the mileage that you have claimed, the IRS will likely reject your mileage claims.

If you get mileage reimbursement from your employer, you may be accused of fraud if you do not have sufficient mileage documentation.

A mileage tracking app you can rely on becomes tremendously important if your employer requires contemporaneous records.

This is the same requirement that the IRS has for those people who want to claim mileage deductions against the tax.

What Are the Tax Consequences of Mileage Reimbursements?

For as long as you can provide sufficient evidence for your mileage, and the claims you make do not exceed the actual expenses, the employer will reimburse the employee as they consider this a tax-free disbursement.

The employer will never reimburse you for operating costs such as maintenance and other expenses that are related to transportation if they do not have direct tax consequences.

The employers will then claim the expenses that they reimburse you for against their taxes.

Employers usually provide a monthly allowance for vehicle expenses called car allowance ato and all they need is for the employee to furnish them with the record of the costs so that they can use those records when filing the tax returns.

Since the enactment of the Tax Cuts and Job Act (TCJA), workers are not able to deduct vehicle expenses against their taxes.

You will, therefore, need to be very careful when you are evaluating your company’s reimbursement policies because if the employer doesn’t reimburse you for the business miles driven, you cannot claim those expenses against your taxes.

Before you accept a job, try to negotiate a better salary in exchange for the expense reimbursement.

And for keeping clean tax records, get a mileage tracking app to log your mileage automatically with no hassle.

Danny Adams sitting in a chair with a laptop

Danny Adams

Co-founder of GOFAR and with a Computer Science background from Harvard University, and a Bachelor of Aerospace, Aeronautical & Astronautical Engineering (Honours), UNSW. I want to transform data from cars into useful services so -> drivers save time & money -> emissions fall -> Australian roads are safer. So we built an ATO-compliant logbook app called GOFAR. I write to help you understand how to use GOFAR to maximise business travel. Reach out via support@gofar.co.

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This content is provided for general information purposes only and does not constitute professional advice from GOFAR. We recommend consulting with an independent legal, taxation, or financial expert to ensure the information is applicable to your specific situation. Please note that relevant regulations and laws may evolve over time.
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