Mileage reimbursement rate going up for remainder of 2022!

Due to the increase in fuel costs, the IRS is increasing the optional standard mileage rate for remainder of 2022. Announced on June 9, the rate increase takes effect as of July 1. The IRS normally updates the mileage rates once a year in the fall for the next calendar year. For travel from January 1 through June 30, 2022, taxpayers should use the rates set forth in Notice 2022-03. But going forward over the next 6 months, the standard mileage rate for business travel will be 62.5 cents per mile, up 4 cents from the rate effective at the start of the year. The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents for the remainder of 2022, up 4 cents from the rate effective at the start of 2022.  

The IRS’s mileage rate is the maximum allowable reimbursement rate for business travel to be considered a non-taxable reimbursement. If a company doesn’t reimburse for that mileage, it’s also deductible as a business expense up to that amount per mile in your employee's tax filing. There’s nothing that says a company must use that rate, its just generally accepted that businesses do. The vast majority of our clients (95%+) choose to use this rate for reimbursing employees for the "en route trips" that they take when relocating family from their departure to their destination location. They also use this for home-finding benefits if the employee is able to drive rather than fly and it is a covered benefit within the relocation policy. 

There is an alternative to using the IRS standard mileage rate. FAVR is the "fixed and variable rate reimbursement method. Using this method, an employer would pay:

• a fixed amount to cover your fixed costs (lease or depreciation, insurance, etc.)
• a cents-per-mile rate to cover your variable costs (gas, maintenance, oil, etc.)

As driversnote warns though, "Be aware that if your employer uses FAVR, you cannot use the IRS standard mileage rate to cover your variable costs. Also, you still have to be aware of the IRS standard mileage rate and compare your payouts to it. Once again, any excess amount will be taxed as income."

Per our very own Director of Expense Management, Cole Johnson, "what is intriguing about the change is that the portion for medical/moving went up the whole 4 cents too. Which would mean that the clients taking advantage of non-conforming states will not see gross-up costs increase for mileage expenses if the increased mileage costs are reported in non-conforming states." For context, there are 7 non-conforming states: Arkansas, California, Hawaii, Massachusetts, New Jersey, New York, and Pennsylvania. Additionally, Cole advised that Plus has updated our expense codes and cost projection tools to accommodate this change.

What rate should you be using within your global mobility program?

Most mobility programs utilize the same rate that is used for business travel as set forth in their corporate business travel policies. But, some reconsider. This blog from Mburse shares that paying a mileage rate equal to or less than the IRS standard keeps the reimbursement tax-free to employees, as long as the company keeps timely and accurate records of business trips and mileage for each employee. Paying more than the IRS rate results in taxes on the portion of the reimbursement that exceeds the published rate.