Due to rising gasoline prices, the Internal Revenue Service has taken the rare step of increasing its optional standard mileage rates for the last six months of the 2022 tax year. These rates are significant since taxpayers use them to calculate the deductible costs of operating a vehicle for business purposes.
Typically, the IRS tweaks mileage rates for the upcoming tax year in the fall. However, record fuel prices pushed the agency to act now for the current year. The last time the IRS made a midyear adjustment was 2011.
What are the new mileage rates for 2022?
The IRS issued Announcement 2022-13 to make the new rates official, setting forth the associated legal language, guidance, and limitations for the new rates. Here is a short breakdown from the agency:
- The standard mileage rate for business travel will be 62.5 cents per mile
- The new rate for deductible medical or moving expenses (available for active-duty members of the military) will be 22 cents per mile
- The 14 cents per mile rate for charitable organizations remains unchanged as it is set by statute
- These new rates become effective July 1, 2022
Moving expenses are only available to active-duty service members “pursuant to a military order and incident to a permanent change of station” (Announcement 2022-13). Taxpayers who traveled prior to this update—from January 1 to June 30, 2022—should use Notice 2022-03 to calculate their mileage rates.
What are the limits on who can claim a deduction?
Announcement 2022-13 states that the Tax Cuts and Jobs Act (TCJA) passed in 2017 limits which taxpayers are eligible to claim a deduction. The TCJA suspends all miscellaneous itemized deductions that are tied to the 2% of adjusted gross income floor until 2026, including unreimbursed employee travel expenses.
So, how do reservists, some state or local government officials, and some performance artists get to claim the mileage rate whereas other taxpayers do not? They are paid on a fee basis, and the IRS considers the deduction in these cases to be an adjustment to income.
What is the big picture?
Fuel costs are, no doubt, a significant factor for determining mileage rates, but other factors also play a part, such as depreciation, insurance, and other costs. Taxpayers can use the optional business standard mileage rate to help calculate the deductible costs of operating a vehicle for business purposes, instead of keeping track of the actual cost.
In addition, the federal government and some businesses use the rate to reimburse employees for their mileage. The IRS notes that taxpayers always have the option to use their vehicle’s actual costs rather than the optional standard mileage rates.
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Sources: IRS increases mileage rate for remainder of 2022; Announcement 2022-13
Trussell Tax